Your Guide to Merit Increases at Work

By Indeed Editorial Team

February 22, 2021

As people gain more experience in their field of work, their value increases to employers, sometimes earning a merit-based raise. Regular merit increases can be part of a larger benefits package that encourages talented employees to choose one employer over another. Merit increases vary depending on the standards employers set, budget restrictions and the average performance of other colleagues.

In this article, we explain what a merit increase is, how it works and share tips on how to earn a merit increase at your job.

Related: How to Ask for a Raise (With Script Examples)

What is a merit increase?

A merit increase is a pay raise that employers give to certain people based on their performance at work. As the name implies, people earn merit increases based on the value of their skills. Some companies give out merit increases on an annual basis, while others may offer merit-based raises in direct response to exceptional work. One common way employers use merit increases is to raise the pay of their employees incrementally based on performance, with the top-performing employees gaining the highest percentage raise.

Why do companies give merit increases?

Companies give merit increases as a way to motivate employees to meet performance goals and create a culture of strong work ethic. The idea behind merit increases is that the increase in pay opportunities will motivate employees to excel, which in turn, will raise company revenue. Merit increases can increase employee retention rates and build loyalty by rewarding people for their hard work. They connect employee behaviors with financial success and, when used properly, motivate all employees to improve their skills.

Merit increase vs. pay raise

A merit increase is a type of pay raise that requires employees to meet specific performance requirements. Merit increases rely on manager evaluations or team feedback to determine how much more an employee will earn. Unlike cost of living raises, which maintain an employee's buying power by adjusting their salary for inflation, merit increases give employees a direct financial reward for bringing success to the company.

One of the most significant differences between merit increases and other types of pay raises are the metrics and requirements that employees must meet to get a merit increase. While merit increases have some flexibility, they all follow performance guidelines so that employees have a clear path to increasing their earnings and are more likely to understand when some employees get raises and others do not. Merit increases also help businesses pay their employees a competitive wage based on the value of their skills within the job market.

Related: 5 Tips to Negotiate for a Cost of Living Adjustment

What is the average merit increase?

Merit increases are usually a small percentage of your overall salary, with an overall average of about three percent. The same company may offer a one percent merit increase to one employee and a 10% merit increase to another, depending on how their performance ranks within the company. When interviewing for a job, ask specifically about how they handle annual raises and whether they offer additional merit increases to high-performing employees.

How to increase your chances of getting a merit increase

Merit increases are a great way to increase your earnings and make a competitive salary that grows alongside your experience. Working hard and being ambitious at work can help you earn a merit bonus or pay raise, but there are other strategies you should use in conjunction with your work. Follow these steps to pursue a merit-based pay increase at work:

1. Read your employee handbook

If you want to get a merit increase, you need to make sure that your employer has a program in place for merit increases. Read through your employee handbook, or ask your manager about merit-based raises. Many businesses have clear guidelines for awarding merit increases that you can use to inform how you prioritize your time in the workplace.

2. Understand your manager's expectations

Generally, managers are responsible for deciding who receives a merit increase and when. Connect with your direct manager and ask about their specific expectations. This will help you understand how you compare to other employees and set reasonable standards for your own work and behavior.

3. Review past feedback

Look over past performance reviews and other feedback to get an outside perspective on the standards you're meeting and the ones you could improve on. Compare your feedback to the guidelines for merit increases and create a plan for aligning your performance with those metrics. Your official performance reviews usually have a direct impact on merit increases, so be sure that you pay extra attention to how your performance compares to expectations for excellence.

4. Gather evidence of your success

Make sure that you document your accomplishments and record evidence of times that you met or exceeded merit-based raise requirements. Advocate for your abilities during performance reviews and mention your most proud accomplishments to ensure that your employer doesn't overlook them when it comes time to give out raises. Share your successes with your manager and coworkers so that your eligibility for a merit increase is obvious to the people making decisions.

Related: How to Write a Self-Appraisal

5. Shadow top employees

Work with top employees to learn the strategies that are most effective for meeting employer expectations and earning a merit increase. Long-term employees could also provide useful insight into the flexibility of raise requirements and how your employer puts merit increases into practice. Improving your skills through shadowing allows you to immediately apply what you learn to the context of your job and boost your chances of receiving recognition for your hard work with a merit increase.

6. Research competitor policies

If you work at a company that rarely gives out merit increases, consider researching competitor policies to find out if you are receiving raises at a lower rate than similar companies. You can use this information to convince your employer to create a more competitive raise policy or take the chance to apply at an employer with better overall benefits and opportunities for financial growth.

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