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Boost Employee Engagement and Retainment with Merit Increases

Jerika Holton
Oct 13, 2023

In recognition of your employees' dedicated efforts, especially during challenging economic times, providing financial rewards like merit increases serves as a meaningful gesture from organizations.

Table of Contents:

Defining Merit Increases

Merit increases, pivotal in the corporate world, are performance-driven financial incentives that may come in the form of bonuses or raises to an employee's base compensation. While not mandated by federal law, they act as a potent tool to amplify employee motivation and allegiance. Pondering on integrating merit raises in your organization? Here’s a guide to initiate your journey.

Assessing Your Financial Framework

Embarking on the merit increase journey necessitates a robust financial groundwork. Identify a budget that can be dedicated to merit increases without jeopardizing your company’s fiscal stability. This paves the way for a meticulously planned and enduring rewards program, assuring your team feels valued.

Consider the broader economic landscape, competitive workforce, and the impact it may have on your business. According to Forbes the average merit increase is 3% of a worker's salary, however, if times are tough, you may need to be more conservative with your merit increase strategy. If your organization is thriving, you might have more flexibility to reward your hardworking employees generously.

Your team may also consider cost of living adjustments. The implementation of COLA merit programs emerges as a strong strategy for employee satisfaction, retention, and financial stability. Acknowledgment of COLA shows your organization understands the economic challenges faced by employees. By adjusting their compensation to be in line with inflationary shifts, you reflect your organization’s commitment to ensuring employees have the resources they need to survive.

Crafting a Comprehensive Plan

In the sphere of merit bonuses, establishing a schedule and defining the criteria for these rewards is crucial.

Merit Bonus Schedule

Initiate by formulating a clear-cut schedule for disbursing merit bonuses. Rather than adhering to traditional annual increases, contemplate a more dynamic strategy. You might opt to bestow merit raises upon achieving specific objectives or projects, aligning rewards with pivotal milestones in an employee’s career trajectory.

This not only infuses enthusiasm into your merit bonus program but also propels employees to proactively contribute towards accomplishing the company's goals.

Equitable Merit Bonuses

To maintain uniformity and consistency across your organization, the criteria for awarding merit bonuses should be unequivocally clear. Consider the following factors when determining the basis for these increases:

  • Longevity in the Organization: Rewarding employees for their loyalty and commitment over time can foster a strong sense of belonging and motivation to stay with your company for the long haul.
  • Years of Experience: Recognizing and valuing the expertise that comes with years of service can be a fair way to differentiate merit bonuses.
  • Industry Salary Standards: Benchmark your merit bonuses against industry standards to remain competitive and attract top talent to your organization.
  • Performance-Based Metrics: Perhaps the most critical factor, tying merit bonuses to individual or team performance ensures that your rewards are directly linked to the contributions employees make to your organization's success. It incentivizes excellence and hard work.

Leveraging Payroll Software for Merit Increases

To simplify and optimize the merit increase process, consider leveraging payroll software. Providers like Greenshades allows you to integrate merit increases into your payroll system. This not only saves you time but also ensures accurate and compliant distribution of rewards, making the entire process more efficient.  

With the use of automated payroll software, your team will no longer have to manually calculate payroll and merit increases on a spreadsheet. By embracing technology to simplify the entire process, payroll software can be your best friend when it comes to managing merit increases efficiently.  

Look for software that allows you the flexibility to set up the payroll codes required to reflect the merit increases. Making it a breeze during the pay run to automatically apply the merit based on the start date you set and to the appropriate employees. Payroll software can also ensure compliance with tax regulations and company policies, reducing the risk of errors and discrepancies.  

Additionally, built-in reporting and analytics features can provide valuable insights into your merit program's impact over time. This data can help you fine-tune your approach and make data-driven decisions.

Setting Transparent Performance Expectations

Transparency is paramount in merit increases. Employees should comprehend what is expected of them to strive and earn their merit increase. Merit increases should be performance-tied. To ensure fairness and transparency in your merit increase program, it's vital to establish a reliable system for monitoring employee performance.

Clearly communicate your organization's merit increase criteria. Clarify how performance evaluations are conducted, which metrics are considered, and the frequency of reviews. This clarity aids employees in understanding how they can excel and enhance their probability of receiving a merit increase.

Consider employing onboarding workflows and employee self-service portals within your HR software to distribute this information effortlessly. Collecting e-signatures to confirm that employees fully understand what is required of them can also be beneficial. Additionally, consider performance evaluation software, enabling employees to access their performance data, comprehend their standing, and work towards their objectives.


In summary, implementing an effective merit increase strategy necessitates a considerate approach that considers your organization's budget, utilizes payroll and HR software to increase efficiency, emphasizes payroll accuracy, and fosters clear communication with employees. By adhering to these steps, you'll not only reward your diligent team but also cultivate a more motivated and engaged workforce, propelling your organization towards sustained success.

To explore how Greenshades can assist your organization in amplifying productivity and retention, get in touch with us!

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