What is the primary focus of merit pay systems?

Merit pay systems primarily focus on rewarding individual performance. The fundamental principle behind merit pay is to link compensation directly to the contributions and achievements of employees. In such systems, employees receive pay increases or bonuses based on their performance evaluations, which are typically influenced by factors like productivity, quality of work, and overall contribution to organizational goals. This approach aims to motivate employees to excel in their roles by providing financial incentives for high performance, thereby fostering a culture of recognition and accountability.

While other factors such as employee needs, company profitability, and standardizing pay can play roles in broader compensation strategies, they do not encapsulate the essential goal of merit pay systems, which centers explicitly on individual accomplishments and distinctions among employees based on their work outcomes.