What Is a Merit Raise [Everything You Need to Know]

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While binging articles about raises and bonuses, you might encounter the term “merit raise.” If you feel like you’re not appreciated at work and deserve a raise, you might be able to make a case for a merit increase, but first, you need to know what it is.

A merit raise is a performance-based compensation increase usually given out to incentivize productivity and encourage healthy competition within the organization. Productivity consultants and the HR department oversee it.

In this article, you will find out more about different types of raises, including merit adjustment, retention-raise, and merit increase. You will also find out the average merit raise by job category and the best practices for earning one. So let’s get started with an in-depth definition.

Merit Raise Definition

A merit raise is a raise given to excellent employees without promoting them or changing their job function. It is awarded to show appreciation for employees that go beyond their contractual duties to add value to the company.

However, that is not the only reason one would get a merit raise. A variety of factors can result in a merit increase, including:

  • Doing more tasks than required – One way to get a merit raise is to take on more duties than are in your job description. These should be duties that need to be done, but no one is around for the job.
     
  • Getting better results than expected – In results-driven roles like media buying and sales, doing the tasks you’re supposed to do but excelling to the point of getting noticeably better results will get you a merit raise. Initially, you might get one-off bonuses, though. 
     
  • Contributing to the company culture – Finally, if you’re valuable as a person in addition to being a valuable employee, you’re contribution to the workplace might be rewarded with a merit raise.

Is a Merit Increase the Same as a Raise?

The word “raise” can be used for a merit raise as well as a regular raise.

The term “merit increase” is tied specifically to performance-driven raises and does not include the raise given for any reason, including merit adjustment. This can be a little confusing because a merit-adjustment raise is based on performance too. However, it is not tied to an increase or improvement in performance.

Here are the simpler versions of each:

  • Raise – a broad term that can be used for any type of pay increase but is usually tied to an increase that isn’t contingent (or a result of) an improvement in performance.
     
  • Merit Increase – Also known as a merit raise, a merit increase refers to an increase in compensation that is contingent on performance improvement or is a result of better performance.
     
  • Merit Adjustment – While management doesn’t admit to a merit adjustment, this is a type of raise that is a result of the management adjusting the salary of a previously undervalued employee.

Here are the key differences between each type of salary hike.

RaiseMerit IncreaseMerit Adjustment
Given to keep employees happyGiven to make employees work hardAwarded once employee realizes the market value of their work
Awarded to entire departments and sets of employeesGiven the top performers from each departmentGiven to individual employees
Can be expected after working for a company for a long timeCan be expected after doing more than your job role entailsAwarded as a contract renewal incentive or to keep you from accepting another offer.

Merit Increase vs. A Promotion

While there are clear points of distinction between an average raise and a merit increase, the difference is harder to notice between a promotion and a merit increase. Every pay increase contingent on promotion is technically a merit increase. However, a promotion requires a change of role while a merit increase doesn’t.

Merit increase refers to an increase in compensation based on performing better and doing more work regardless of whether your position is changed. Promotion refers to an improvement in your position regardless of your compensation change.

It is harder to tell the two apart because they are triggered simultaneously. A salesperson who becomes a sales manager gets a promotion and a merit increase. However, it is possible that her title and function changed without her income reflecting her new duties. In that case, she would receive a merit adjustment down the line.

In another case, a salesperson getting a merit increase to the point of earning as much as a sales manager is likely to be placed as a sales manager at the same time. That said, it is not mandatory for the firm to give him a higher-ranking position as a merit-based reward. In roles where the improvement of one’s performance is tied to a specific job function, promotion is rarely handed out as a merit-based perk.

Some of these positions are:

Customer Service Agent 

Your value in this role is to connect directly with customers. The reward cannot take away your value to the company by moving you away from the customers (in a management role). As a result, you’ll likely get a pay raise based on merit without a change of role. 

Salesperson 

Good salespeople are rare, and they aren’t immediately promoted to a sales manager role. That’s because managing people takes a different skill set compared to selling. A salesperson is likely to get a merit raise without a promotion. 

Executive Assistant 

This role includes very specific job functions, and any change in position can leave plenty undone. As a result, secretaries and assistants get raises based on performance without a title change. 

Front of House Restaurant Staff 

Finally, all hospitality and dining jobs that require one to be in front of people have a very low short-term promotion ceiling. That is because the better you are at your job, the more you’re needed in your specific role.

How Is a Merit Raise Calculated?

Merit raise is calculated by quantifying the impact of an employee’s performance improvement on the business bottom line and converting it to a rating scale. A raise within this amount is decided by the management based on feasibility and the predictability of the employee’s improved performance.

Merit Increase Example Scenario:

If a consulting company is contracted to improve the productivity of a department, it learns more about the organization, different positions, and the job functions. Sometimes, as a pay-roll decrease measure, it recommends erasing some positions and adding their functions to other roles. In that case, the target merit increase is lower than whatever the company saves by firing people in redundant positions.

More often, the consultants look at the different roles and translate the KPIs to a rating scale. This is usually a 5-star rating scale with one decimal consideration. So, you can rank anywhere between 0.1 stars to 5.0 stars.

Your current performance is given a 4-star rating, which leaves room for a 20% increase in productivity. This can result in a maximum of 10% increase in compensation. How the performance translates to the rating scale depends on the HR department and the consulting firm.

But here is what an employee can do to increase their odds of getting a merit increase:

  • Submit your initial job functions and additional functions in separate documents – This ensures that your improved performance isn’t rated as your base performance.
     
  • Keep track of your KPIs and have them up to date – Even if your manager doesn’t require personal tracking, it is in your interest to have that data.
     
  • Have a proposal ready for functions you can take on within the same position – You cannot trust the HR manager or the consultant to know the best way to put your skills to use.

While the above practices will improve your odds of a merit raise, managing expectations is important. The table below goes over the average merit raise for different positions and the likelihood of getting one.

JobAverage Merit IncreaseLikelihood of getting a Merit Raise
Salesperson5% to 15%8 out of 10
Product Development Role3% to 4% 6 out of 10
Art Director7% to 10%5 out of 10
Corporate Executive3% to 4%7 out of 10
Tech Lead6% to 9%8 out of 10

Is 3% A Good Merit Increase?

Having seen the different merit raise possibilities, you might see why the lowest percentage increase also has very high odds of getting approved. But would accepting 3% be considered low-balling yourself? I don’t think so.

3% is a good merit increase for junior executive roles as well as low-skill job positions. A 3% increase in a marketing executive’s salary is going to differ in dollar amount from a 3% increase in a receptionist’s pay. For middle-management, a 5% increase is reasonable.

It is easy to get caught up in intra-organization comparison if your colleagues disclose their increase. It is prudent not to get drawn in by such comparisons as different employees have different base pay. Your impact on the bottom line, as well as replaceability, might vary from your colleagues. Instead, you should look at the role-specific average merit increase and decide whether your compensation hike is appropriate.

What Is the Average Merit Raise Increase in 2022?

The average merit raise increase in 2022 is more than 4%, with nearly 45% of the companies planning to give out across the board raises of 3%, according to Payscale’s 2022 Compensation Best Practices Report (CBPR).

According to an analysis of the Bureau of Labor and Statistics’ March 2022 report, the rise and fall of compensation hikes in the great resignation and potential inflation averages at 4%.

This means you should request a 4% merit raise if you’re offered a 3% increase because a 3% salary increase is being offered to simply retain employees. If you’re expected to work more or have been working more, you should set a 4% merit raise target.

Final Thoughts

A merit raise is a result of being an excellent employee in an excellent organization. Ideally, you should aim to outdo your job description, and your employer should recognize the value you add. But even if that doesn’t happen, you should keep track of your additional duties as well as the tasks you can do. This will help you make a strong case for a 4% merit raise.

Read How To Ask for a Raise: The Ultimate Guide next!