A merit increase is something that many companies give to their employees to recognize the outstanding work they are doing. When businesses implement these rewards properly, they can serve as a strong incentive for employees to perform at their best. However, whether you distribute merit increases through HR or directly, you want to have a strategic plan for doing so, using performance as a guide. This post will guide you through the information necessary to implement merit increases successfully.
Merit Increase Meaning
Understanding the merit increase meaning is at the top of the list before you can successfully put policies in place for it. What is a merit increase? In simplest terms, a merit increase is a financial reward given to employees after they reach agreed-upon business goals. Merit increases are also given to employees who go above and beyond with excellent performance. Most performance-based jobs work well with merit increases because they have an easy way to measure achievements.
A merit increase is different from a bonus. Although a bonus is also often given to employees for their hard work, it differs from a merit increase because it is just a one-time award. A merit increase is usually a salary increase. Some other types of merit increases are discussed below, but for the most part, the reward is long-lasting.
Types of Merit Increases
The most common type of merit increase is a pay increase. This salary bump motivates employees, inspiring them to strive for greater success in the workplace.
However, this isn’t the only type of merit increase employers may offer. Some businesses may give a high-performing employee a promotion. This is another type of merit increase and would come with a pay increase, too. Using merit increases keeps employees motivated and moving forward on the ladder of success. The more they succeed, the more the company succeeds.
Tips for Handing Out Merit Increases
For any good program to be effective, it’s helpful to plan the process carefully. To utilize a merit increase, you need guidelines in place. The following tips will help businesses when implementing a merit increase.
Start with a clear and concise plan for merit increases. These should be directly connected to the employees’ performances. It’s best to put the merit increase policy in writing so that everyone can see it and understand what is expected of them. It also helps avoid any misunderstandings.
Once you have the policy prepared, stick to it consistently. Don’t use it for some employees and not others. You need to think everything through before developing the policy, so you are sure it’s something you can do. In other words, you must consider how it will impact the business if several employees meet their objectives and are due for a merit increase. You must follow through once you have implemented the policy. However, you can put a section that states that you will review the policy and make necessary changes annually.
You want to reward the employees, but at the same time, you need to be practical. As mentioned above, your goal is to provide an incentive for employees to achieve excellence. A merit increase can help employees achieve higher levels of excellent work. But you don’t want to overextend the company too much by offering impractical increases.
Solicit Advice from Department Heads
If your company has several departments, it is helpful to get advice from the various heads of the departments about the best way to structure the merit increase. They may have vital input about how the merit increase should work based on the mechanics of the department’s inner workings. Whatever the case may be, get advice from the parties who will be involved before developing a policy and before moving to the next step of training.
Once the merit increase policy is developed and written, you need to train the management and leadership on what the policy is. Since they will be the ones primarily distributing the merit raises or promotions, they need to be well-versed in how the process is supposed to go. You may need to have periodic meetings with the management to ensure that they are implementing the policy properly.
Follow-up and Restructure as Needed
Every year, you can assess the entire merit increase policy to see how it’s working. You can also determine how the business is performing. Reviewing these will help you determine whether the merit increase you’ve put in place is working well or needs any changes. If it’s based on a percentage point system, you might change the amount, or you could keep things the same.
Benefits of Merit Increases
Merit increases benefit not only the employees but also your business in the following ways:
Boosts Employee Morale
Employees will be motivated and inspired to work harder when they know there is a merit increase at the end of their work. Merit increases can give employees an incentive to achieve their goals, thus boosting office morale.
Identifies Business Priorities
When the company sets the policy for administering the merit increase, it also identifies the business’s priorities. By highlighting the types of performance the company will reward with a merit increase, employees and others know what is relevant to the business.
Enhances Employee Retention
Employees will be more likely to stay at a company that offers opportunities for growth and development. A company that rewards excellent performance by providing employees with merit increases will see greater employee retention. Employees will have a goal to work towards as they strive to get to the next level and achieve the merit increase.