HR Terminology Merit pay

Complygate has put together a complete list of key HR terms, phrases, acronyms and jargon to assist HR professionals in navigating the extensive, ever-growing HR terminology. We would like to encourage you to read, share and make use of this terminology collection. If you have any suggestions of terms or keywords we have missed, please contact us and we will include them in our next update.

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What is merit pay?

Merit pay is something that is referred to a performance- based pay. This includes bonuses or base pay higher for employees that complete the target goals or carry out their job role effectively. To measure this over a predetermined period of time.

The benefits and drawbacks of merit pay:


  • Higher amounts of performance as employees will be rewarded.
  • Performance will be related to the pay system, therefore, give the business advantage as the recruitment of employees with confidence and skills to work.
  • More retention of employees that benefit the rewards from the pay system.
  • Employees can be rewarded fairly if the goals/expectations are exceeding.
  • By giving employees that performance better an increased pay allows the employers to differentiate.
  • It can be said that merit pay is biased and subjective.
  • Employees develop the expectation to a consecutive pay increase.
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