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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