What system of pay increases is based on individual performance evaluations?

Merit pay is a system of compensation increases that is directly tied to the evaluation of an individual’s performance. This approach rewards employees for their contributions to the organization, encouraging them to strive for higher levels of achievement and productivity. Merit pay adjustments typically take the form of salary increases or bonuses that are awarded based on performance reviews, which assess factors such as quality of work, attendance, teamwork, and overall contribution to the organization’s goals.

In this system, an employee who meets or exceeds performance expectations is more likely to receive a higher merit increase compared to those whose performance is average or below. This creates a strong incentive for employees to improve their work and outcomes, as their financial rewards are inherently linked to their individual performance. The merit pay system can help attract and retain top talent, as it recognizes and compensates high performers, fostering a culture of excellence within the organization.