Merit raises are the part of the appraisal cycle where the company's words about performance become its actions about pay, and where a cycle run well or badly is finally noticed by everyone. What are merit raises, in practice, is a budget set before the cycle, a matrix that converts each calibrated rating into a percentage, and an outcome sheet per employee that records the new salary. This page sets out how merit based raises are budgeted and allocated in a company of ten to two hundred, how the merit increase salary is worked from the current pay and the matrix cell, and how the conversation goes with the employee whose rating earned no raise, which is the conversation that decides whether the cycle was credible.
Budget first, ratings second, allocation third
The merit budget is a share of the payroll set before anyone is rated, so the ratings cannot be shaped to fit the money. The reviews are written and calibrated across managers. Then the matrix is applied to the calibrated ratings, and the total is compared with the budget; if the table costs more than the budget, the percentages come down uniformly, not the ratings. Doing it in that order is what makes it possible to tell an employee that their rating drove their raise, because it did. Doing it in any other order means the raise drove the rating, and everyone can tell.
Working the merit increase salary
The employee's current salary, the calibrated rating, the position in the pay range and the matrix cell that rating and position land in give a percentage; the percentage on the current salary gives the increase and the new salary. Where the company also pays a cost-of-living adjustment, it is worked separately and shown separately on the outcome sheet, so the merit part is visible on its own. The free final comments worksheet on this site does exactly that arithmetic from the figures you enter, the rating, the current salary and the matrix percentage, and shows the outcome with example comments beside it.
The employee who got no raise
A rating below the line on the matrix earns no merit raise, and the conversation is the test of the whole cycle. It goes well only if the objectives were written at the start, the self-appraisal and the manager's comments were about them, and the rating was calibrated, because then the manager can show the evidence and the rule, and the development plan is the answer to what changes next period. It goes badly when the rating is a surprise. Reviewvo Pro keeps the objectives, the ratings, the comments and the outcome on one record so that the no-raise conversation is a reading of the record, not a defence of a memory.
Questions people ask about merit raises
What are merit raises?
Base pay increases awarded for performance in the reviewed period, allocated by applying a merit matrix to each employee's calibrated rating within a budget set before the cycle.
How is a merit increase salary calculated?
The matrix gives a percentage for the employee's rating and position in the pay range; that percentage on the current salary is the increase, and current salary plus increase is the new salary. Any cost-of-living adjustment is worked and shown separately.
What do you tell an employee who did not get a merit raise?
The rating, the evidence behind it against the objectives, the rule that ties the rating to the raise, and the development plan for next period. If any of those is missing, the conversation is about the cycle's failure, not the employee's.