Merit Increase

A merit increase is a salary raise based on individual performance during the annual comp cycle. It's funded from a fixed merit pool set by leadership, with managers differentiating: top performers get 6-8%, average 3-4%, underperformers 0-2%.

Merit increases differ from promotion adjustments (new band), market adjustments (correcting vs benchmarks), and cost-of-living adjustments (inflation-based, not performance-based).

Effectiveness depends on differentiation. If every employee gets the same 3%, the merit increase loses its motivational power. The best cycles create meaningful separation between performance levels.