Merit Increase | Meaning and Definition

What is merit increase?

Merit increase involves rewarding the employee for good performance with greater compensation. It should not be confused with promotion which provides career advancement, as the person still remains in the same job. Promotion, further, entails more contributions, a new title, and increased responsibilities. You can take merit increase as a kind of appreciation and recognition.


Who is qualified for merit increase?

Merit increase is a regime different from promotion, where an employee is rewarded for the high and successful performance of the given role. Unlike promotion, employees receiving merit pay do not get any increase in their responsibilities. And that’s why merit increase is instrumental for the appreciation and recognition of the employees.

To determine who should be given a merit increase, the following factors are considered:

  •   Availability of pay increases funds.
  •   An employee is performing well and is in good standing.
  •   Leaders of the entity have proposed merit increases for employees who are under consideration.
  •   An employee being considered for a merit increase lies inside the salary pay range for the position.


Rewarding stunning performances of employees with merit bonuses are worthwhile in reducing the turnover risk and business errors. It positively boosts the morale and productivity of the workers. And eventually, that would show up in the efficiency and earnings of your company.


Furthermore, it facilitates employee retention, which directly minimizes the number of employees a business needs to hire, thus, reducing business expenses. Incorporating this reward system helps in keeping the employees excited and engaged to contribute honestly to the company’s success.

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