Tess C. Taylor, PHR, The HR Writer, PayScale
When it comes to raising employee morale while simultaneously boosting productivity at work, one employee at a time, a strategic way to compensate high performance employees is through merit raises. These often unscheduled pay raises or bonuses are generally part of an overall effort to reward and recognize employees for their hard work. Merit raises can be managed either through a discretionary fund that each department head doles out, or by arranging for merit increases to correspond with employee performance records.
Either way, the question remains – do employees actually appreciate merit raises or are there alternative ways to say “thanks” for a job well done?
The Good Side of Merit Raises
In a nutshell, merit raises and other cash incentive programs are designed to recognize the achievements of employees who go the extra mile. Based on encouragement and positive reinforcement, merit raises can help employees reach their financial goals and gain the respect of colleagues. This motivates and inspires them, giving other employees an example of how they too should conduct themselves at work.
Merit raises are effective when used as a retention tool too; when employees know they are eligible for a raise after a certain amount of time on the job they may stick around longer. The general rule of thumb with a merit raise is to limit it to 1 to 3 percent of the employee’s salary once a year, which is often enough to make a difference. This can also be a good way to provide extra compensation to a more senior employee who has reached the top compensation level, without overpayment. The merit raise is perceived by most employees as a positive aspect of working hard.
The Negative Side of Merit Raises
Unfortunately, just like any other bonus or recognition program, a merit raise policy can go wrong when it’s not managed fairly. Giving merit raises is at the discretion of supervisors, therefore if a manager has a “favorite” employee, they are more likely to reward that employee with a merit raise before another just-as-deserving employee. In this case, employees may not fully appreciate that their company gives out merit raises only to the most popular employees. They may also feel that they can get better compensation elsewhere.
Another pitfall happens when employees do not have a clear idea of how they can earn a merit raise or the raises are randomly handed out with no real structure. Employees who do not earn them (even though they feel like they have been working hard) can become disillusioned and resentful – tearing apart any productivity or team cohesiveness there once was. Mismanagement and not tracking merit raises becomes more trouble than it’s worth.
Managing a Fair Merit Raise Policy
If your company decides to start a merit raise or bonus policy, it’s important to set up system for creating reasonable performance goals for employees and then tracking who gets these incentives. Take the time to do a review of all staff salaries and compare them to the national rates, to ensure that you are meeting industry compensation trends. Clearly communicate to all eligible employees what they can do to earn merit raises, bonuses, and other incentives. Work closely with each department and team to make sure that all employees are treated fairly and have the support needed to reach their performance goals.
Set up some flexibility within the merit raise program, so that there are multiple options for rewarding high performance employees. Offer other non-cash incentives, such as wellness and educational programs, to give employees access to things that will be meaningful to them. By following the above tips, your organization can easily manage a merit raise program to help foster a more positive and productive workplace.