Merit pay is an increase in the salary and payment made to an employee for achieving the specified target or objective. The employees are evaluated based on metrics set for the targets, and accordingly, the pay is decided. The objectives and targets for metric pay are to be clearly set and communicated to the employees.
Offering merit pay is beneficial for the organization as it has a significant impact on employees as well as the organization. The benefits are:
The process of offering merit pay should be done systematically; otherwise, it can bring some demerits to the organization. Some of the disadvantages of merit pay are:
The difference is:
|Merit Pay||Incentive Pay|
|Given on an individual basis||Can be on the individual, group, and team base|
|Permanent increase in base salary||One-time pay|
|Mostly monetary gains||Can be monetary or non-monetary|
|Based on specific criteria||Specific criteria are not always set|
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