What Is Merit Increase? | HR Glossary | BambooHR
A permanent rise in base pay awarded for individual performance rather than cost of living.
A merit increase is an addition to an employee's base salary granted because of their individual performance and contribution, distinct from an across-the-board or cost-of-living adjustment. It rewards people who consistently exceed expectations and helps retain your strongest performers.
Merit increases are usually decided during an annual pay review, informed by performance ratings, position within the salary band and the overall pay budget. A structured merit matrix — linking rating and pay-range position to a percentage — keeps decisions fair and defensible.
Because merit pay compounds year on year, disciplined governance matters. Poorly managed merit rounds can widen unexplained pay gaps, so many employers now review merit outcomes for consistency across gender and other characteristics before awards are confirmed.
