Merit Increases as an Option for Your Employees

Young woman at desk clenches her fists and smiles with joy.

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.

Be Consistent

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.

Be Practical

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.

Implement 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.

Exit Interview Questions

Street lighting pole with conceptual message Exit Strategy on directional arrow over blue cloudy background.

Many employers give departing employees an exit interview because of the information they can get about the company and its operation. Although employees may be a bit timid about speaking out as they are leaving, you can help facilitate a productive exit interview with the right strategy.

What Is an Exit Interview?

Exit interview questions are a series of questions that the employer asks an employee who is resigning. The point of an exit interview is to find out why the individual left so you can work on improving the workplace. Employees have a completely different perspective than their employers. So, they may be able to provide you with information about things that you hadn’t considered.

The Importance of Exit Interviews

Whether you are seeing high employee turnover or not, it’s helpful to know what is causing employees to leave. Of course, if you are seeing a lot of employees walk out the door, it’s even more critical to determine why.

You can obtain valuable information about what is driving employees away. As a result, you can resolve the issue. Remember that every time an employee leaves, it costs money to fill that void. Getting the best hire and then keeping them satisfied is a step in the right direction. You’ll save money and have a better work environment.

Examples of Exit Interview Questions

This exit interview template of sample questions can assist you as you conduct the sessions:

1. What motivated you to start looking for another job opportunity?

Start the exit interview questions by getting straight to the point. What led the employee to begin the job-hunting process? That’s assuming they were job hunting and a recruiter didn’t contact them, which would be a whole different conversation. Most people who leave have been looking for a job and going on interviews before landing a job they want.

There is a chance that the person is simply moving to another state or town. In that case, leaving may not have anything to do with how the company was run. The way they answer the question can help you know how to follow up, and their answer can help you determine if there are certain perks that employees are leaving for. If many employees say they are leaving due to poor compensation, lack of benefits, or career advancement, then you may have to reconsider the employees’ pay scale and training opportunities.

2. Was your manager helpful in making you succeed at work?

Managers are responsible for ensuring that their team succeeds on the job. So, when an employee exits the company, it’s helpful to find out whether the manager did their job in that regard. The manager can either provide the person with the resources they need to excel, or they may neglect them, and the employee feels they can’t be successful.

3. What were your favorite and least favorite things about the job?

This exit interview question can give insight into what made the job exciting and rewarding for the employee. You can use this information to entice the new candidates you will be interviewing. You can also make good use of the answer about the least favorite thing about the job by ensuring the next person you hire doesn’t dislike whatever it is.

4. How do you think the company could improve?

You may get a whole range of suggestions and ideas from departing employees. Some may not be practical but don’t discount all of them. Even if you can’t implement them as stated, you can at least find out what types of things people are looking for in a work environment.

5. Was there anything that could have changed your mind about leaving?

This may be a pointed question, but it’s necessary to get to what the dealbreaker was for the person. It can help employers view the work environment and situation from their perspective. It can help employers know what types of things they may need to offer in the future. For example, if a person says they would have changed their mind about leaving if they had a quieter workspace, more flexible work hours, or better benefits. You don’t know what they will say, and that’s the point. What is said gives insight for future decisions.

6. Do you feel your job changed during your employment time?

Sometimes job requirements change over time. What started as a set of job responsibilities could evolve and look very different by the end of a person’s employment. It’s critical to know if this happened to the employee. Furthermore, if it did occur, it’s vital to know if the changing role impacted their decision to leave. If the job evolved and became more involved, more difficult, or required more training, this is something you need to address with the next new hire.

7. Did you share any of the concerns we discussed today with the company before deciding to leave?

The answer to this question can bring much information. If the person did not share their concerns, then it may be because they didn’t feel like they “could.” In other words, the company culture didn’t promote it. This is something that you would want to change so employees feel comfortable enough to go to their supervisor with complaints.

If the answer is yes and it was ignored or worse yet, they were retaliated against, then you may need to do more workplace training with the managers. Management needs to have an open-door policy, so employees feel safe coming forward with whatever issues they have.

Tips for Conducting Exit Interviews

These tips can ensure the exit interview goes well:

  • Let the person know in advance about the exit interview. Don’t spring it on them suddenly. That would make the person feel uncomfortable.
  • Ensure that you have a comfortable setting for the exit interview.
  • Let the employee know that everything they say is confidential, and the information is only used to help the company grow.
  • Reassure them that their answers won’t affect their reference in any way (this is provided they would be getting a good reference).

What Is FTE (Full-Time Equivalent) – And How Do You Calculate It?

FTE image showing elements relating to Full-Time Equivalent

What is FTE? FTE stands for full-time equivalent. It is a measure used for the total of full-time employees—or part-time employees that add up to full-time employees—your organization employs.

An FTE calculation helps a company and its various departments determine hiring needs for the future. In addition, they help you forecast and track employee salaries and hours worked. FTE metrics are also used to ensure compliance with legal employment requirements, like those of the Affordable Care Act (ACA), as well as meeting the requirements for certain company tax credits.

What Is an FTE?

What does FTE mean? FTE indicates the number of hours a full-time employee works in a standard week for your business. The purpose of using FTE is to get to the number of total hours worked vs. the number of employees you have.

Utilizing the total hours worked vs. the number of employees allows you to forecast, budget, and calculate required staff and wages to pay them more easily. For example, if your company’s standard work week is 30 hours, then two employees that work 15 hours per week each or three employees that work 10 hours per week each would count as one FTE.

FTE standardized calculations like this are helpful for a number of reasons. For one, they allow for the evaluation of labor costs and workload requirements. For example, once a project manager estimates the number of full-time workers required to accomplish a project, they can calculate salary needs.

Or a business analyst can determine requirements to meet day-to-day business tasks for a new department, which allows them to determine the number of full-time employees to forecast and budget for that department. Managers and HR departments also apply FTE calculations to allocate department headcounts based on each department’s workload.

Budget analysts can use the FTE meaning job metrics for headcount analysis. They can quickly compare profits to headcounts or output numbers with FTE metrics. Employers also use FTE calculations for benchmarking profits or revenues per employee.

HR departments utilize FTE to standardize salaries and working hours for part-time employees. A quarter-time employee would be a 0.25 FTE since they work 25% of the hours of a full-time employee. As such, they would be paid 25% of a full-time employee’s salary.

When annual forecasts are necessary, the term work-year equivalent (WYE) is sometimes used in lieu of full-time equivalent, or FTE.

How Do You Calculate FTE?

You can technically break the FTA meaning down into two categories:

  1. The total number of part-time employees your company employs or requires that equate to a full-time employee
  2. The total number of full-time employees your company employees or needs to hire.

When you add up items 1 and 2, you get the total number of FTEs currently with or needed for your organization.

So, again, FTE calculations align with hours worked rather than the number of employees. You could have four employees and only have one FTE. One FTE would equal four 0.25 employees.

To calculate FTE for your company, follow these steps:

Step 1:

List all your employees and their weekly hours worked. Exclude independent contractors, as they are not considered employees.

Example: An employer has a headcount of five. Three employees work 40 hours per week. One employee works 20 hours per week. One employee works 30 hours per week.

Step 2:

Identify the number of work hours defined as a full-time position. Most employers define a full-time employee as one that works 40 hours per week, on average. Some organizations might use 30 or 35 hours to define full-time employees. Any employee that works an average number of weekly hours below the full-time employment definition would be considered part-time. The number of hours per week that defines full-time employment is the number that is used to determine one FTE.

Example: The company defines 40 hours per week as full-time.

Step 3:

Determine the total hours worked per year. Multiply the number of hours per week by 52, for 52 weeks in a year.

Example:

40 weekly hours per full-time employee: 40 X 52 = 2,080 hours = 1.0 FTE

20 weekly hours employee: 52 X 20 = 1,040

30 weekly hours employee: 52 X 30 = 1,560 hours

Step 4:

Add together all part-time hours worked by employees defined as part-time.

Example: 1,040 + 1,560 = 2,600 hours

Step 5:

Calculate your part-time FTE by dividing the total hours worked by part-time employees calculated in Step 5 by the total annual worked by full-time employees calculated in Step 3.

Example: 2,600/2,080 = 1.25 FTE

Step 6:

Determine your total FTE by adding your full-time FTE to your part-time FTE from Step 6.

Example:

Three full-time employees = 3.0 FTE

The part-time FTE = 1.25

3.0 + 1.25 = 4.25 FTE

In the example calculation, the headcount is five, and the FTE is 4.25

How Do You Calculate a Single Part-Time Employee FTE?

To determine an employee’s FTE, simply divide the employee’s scheduled weekly hours by the number of hours the employer defines as a workweek. For example, if you define full-time employees as working 30 hours per week, a part-time employee who works 18 hours per week would be 0.6 FTE.

What Is the ACA FTE Definition?

The ACA requires employers that have 50 or more FTEs to provide ACA-compliant healthcare benefits. The Affordable Care Act defines full-time employees as anyone working 30 hours per week or more on average. Even if your organization defines full-time employment as more, you must abide by the ACA definition to be in compliance with ACA requirements.

FTE calculations are necessary for employers to fully appreciate their workforce and budgetary needs. They are also useful in determining how well an organization is doing in regard to output per employee and the bottom line. You now have the basic calculation to determine the FTEs you currently have or to forecast future needs, among other reasons you might find the metric and FTE meaning useful.

Unemployment rises as The Great Resignation becomes “Quiet Quitting”

The unemployment rate checked in with a bang for August, moving to 3.7% from 3.5%, while 315,000 jobs became available. Is the the first big jolt in the wrong direction so many – particularly those in the “Yes, we are in a recession!” camp –  have been predicting? Job gains showed most forcefully in health care, retail trade, and professional and business services.

While the number of unemployed rose by 344,000 to 6 million.

Those considered active jobs seekers – they’ve looked for work during the last 12 months, but not in the four weeks prior to data collection – stayed steady at 1.4 million. They are described as “wanting and being available for work.”

Permanent layoffs increased by 188,000 to 1.4 million. New figures on what we all now know as The Great Resignation aren’t out yet, but the July number was 4.2 million, bringing the quit rate to 2.7%.

So why is everybody talking about Quiet Quitting?

Peacefully Sitting, Quietly Quitting

Quiet Quitting seems to be a perfect term for the complete lack of passion it describes. The Great Resignation was, and – as far as we know at the moment – still is, fuelled by enough passion to make people walk out of their jobs in the hope of something better. Something more flexible. Something more… remote.

These folk don’t have the same fire in their bellies. And that may be the underlying issue.

“Quiet quitting’ is a term that has taken social media by storm and is become something of a phenomenon in countries like China and Australia. Unlike other terms such as ‘job hopping’ or the ‘Great Resignation’, which can be defined easily, this acts as a teaser term, leading to lots of online questions around what it actually means.

Most sources say it began in China, with the term ‘tang ping’ or ‘lying flat’ taking hold across the country, among young people demanding a better work-life balance.

Ultimately, it means employee disengagement. Since job hopping and the Great Resignation were terms coined to describe new phenomena in the work place, this term could be seen as disingenuous. In reality, it appears to have been coined by people wanting to discuss an old issue by attracting people to the idea – which is actually very clever.

It would be a shame to think that people intelligent enough to come up with new terms for an old problem, then take social media by storm in various countries, are actually disengaged in their own jobs.

This really does conjure up an image of wasted talent.

Of course, the fact that it’s becoming so popular in the US – on the heels of the Great Resignation, is more than a coincidence. There is a feeling that burnout, or a desperate response to the onset of burnout, is permeating these trends.

So What Does It Mean to Quiet Quit?

Employees will often become disengaged if they feel overworked and underappreciated. The core of quiet quitting appears to be a refusal to do anything more than the basic duties a person was hired to perform. That doesn’t sound so bad on the face of it, but what it implies is toxic: employees who think of their jobs as nothing more than a paycheck. 

Let’s be clear. If the problem is that a business can’t cope with people fulfilling their employment agreements and doing what they were hired to do, it means the problem is with that business. They are expecting complete devotion and gratitude and unreasonable “flexibility”. 

If the problem is a lazy person clinging to the limits of their job at the expense of team spirit, or refusing to help others by going the extra mile now and again, the problem is with that person.

Clearly, there is no simple answer to solve this question.

However, quiet quitters do guarantee that teamwork will break down, because so much relies on people helping each other – rather than individuals performing pre-set tasks that exist within a relentlessly smooth, uninterrupted process.

That’s simply not realistic.

And once teamwork starts to break down, the company follows.

When people stop helping each other with simple tasks because ‘that’s not my job’ or ‘that’s not in my sprint,’ resentments start to build and cracks start to appear. It’s possible to think: ‘Well, it’s for the best if those types quit.’ That’s fine, but not if you’re responsible for creating those people by bringing them into your badly run company.

Quiet Quitting Vs. The Great Resignation

With fears of recession in the US, some believe the end of the Great Resignation is in sight, as employees start to fear losing their jobs. It now seems possible that one phenomenon will be replaced by another, equally toxic, phenomenon. If you cannot engage your employees, you will end up with teams of quiet quitters, slowly and indifferently destroying your business.

If a recession gives you the leverage to force reluctant workers back into the office, for example, what sort of engagement will you inspire? How much long-term value can you squeeze out of people’s fear of losing their jobs?

Try to imagine how that could go wrong.

Engaging your employees does not mean burning them out. If you can manage that, you should think about showing credit where credit is due. Office politics and cliques create quiet quitters wherever they fester. Breaking down office politics, giving praise, handing out cash bonuses for ‘above and beyond’ performance – these types of positive engagement can have great ROI.

A well-designed workflow and transparency in communications will also make a difference.

Hiring good managers is also a great way to prevent the production of quiet quitters in your company. Getting it wrong means trouble. Another method is using Ladders to find highly skilled, highly qualified professionals, pay them what they’re worth, and treat them in the way they deserve.”

And getting that right should also keep The Great Resignation at bay, too. (Maybe.)

So Where Are We Going With This?

With the drop in employment to 3.5% last month, some were quick to see this as the start of a move in the right direction, and evidence that the recession naysayers could be wrong. Fair enough, but Ladders CEO, Dave Fish, gave his advice clearly, and it was reported as follows:

If the current unemployment rate of 3.5 percent cannot be sustained and starts to move into reverse in the near future, Dave believes the consequences could be shocking for professionals across industries:

  • For employers: Employers will likely find themselves ripping up hiring strategies and going into financial survival mode. Current top-of-mind issues like retention rates will go out the window as the balance of power shifts and employees become worried about losing their jobs. Ironically, too much of a perceived shift will almost certainly backfire. Flexibility is here to stay, so employers who make too much of having the upper hand could pay a heavy price.
  • For professionals: Professionals who have been enjoying The Great Resignation will start to experience a colder world with less opportunities. However, as stated, they will also see that many remote-work and other flexible options will remain. Some may need to switch industries or brush up in new areas of expertise to gain those career options, but there is little chance that millions of people will simply accept that the game has changed and knuckle down.

“We have helped our members weather many storms over the past 19 years,” Dave told us, “throughout The Great Recession, the pandemic, and current uncertainty about the future. At the moment, we’re delighted about the new low unemployment figures, but still offering our Premium careers package to businesses at a discount, so they can gift a Ladders membership to any professionals who find themselves having job offers rescinded, or being laid off. 

“As we continue to navigate these economic challenges and bizarre contradictions, our team is committed to helping professionals compete effectively, and to provide the tools necessary to ensure their success, regardless of how the balance ultimately tilts.”