During the coronavirus pandemic, many employers temporarily decreased or paused their merit pay increases because of budget constraints. However, for 2022, most organizations plan to bring merit raises for executives, management, professional employees and support staff back to their pre-pandemic 3% average, according to a survey by benefits consulting firm Willis Towers Watson.
The exact amount of a merit pay increase depends on what your company can afford, its industry and the specific determined criteria for earning a pay increase. [Read related article: How to Choose a Payroll Software Provider]
Best practices for implementing merit increases
These are a few critical factors to keep in mind when implementing merit pay increases:
- Develop a clear policy.
Merit pay is a great way to incentivize employees. However, your policy must be reliable and consistent, as it will serve as a guideline for how workers are awarded their additional pay.
This policy should clearly state the metrics for receiving merit pay, the projected increased amount or range, and when the employee will receive their pay increase once they achieve their goals. If the policy is unclear, employees may find it challenging to meet the criteria for a pay increase.
Managers should clearly explain the merit pay increase policy to employees during the onboarding process, amid annual performance evaluations and anytime the policy changes.
“I would advise business leaders to present … opportunities to receive additional payment,” Hammell added. “By effectively communicating these opportunities of growth in an employee’s current position or in other positions within the company, business leaders can reemphasize their loyalty and investment to their employees.”
- Listen to employee feedback.
Incentive programs – such as merit pay – allow managers to receive constructive feedback from their employees. Those who create the merit pay policy can reevaluate the outlined goals and incentives to see if the metrics are too challenging to achieve, too easy or at the right level.
Employees should also give their opinions on the incentives to coordinators. Some may prefer a merit pay increase, while others may opt for certain benefits or prizes as a reward. By listening to and receiving employee feedback, managers can create a fair merit pay increase policy with metrics and incentives that remain motivating for everyone.
- Train your leaders.
Merit pay programs don’t just measure the quality of an employee’s output; they also measure the effectiveness of your organization’s managers. A successful management team must be able to support its workforce.
A merit pay increase policy shows how effective managers are at providing help and resources to the employees who report directly to them. When managers hold themselves accountable for their employee’s merit pay success, there’s a greater overall sense of teamwork.
- Communicate changes regularly.
Once a merit pay increase policy is established, managers should frequently evaluate the process to see how it’s working. If they realize something’s wrong – for example, if many employees aren’t reaching their merit pay goals – they should adjust the policy.
Anytime managers make a policy change, they must inform employees of the modifications and how these changes might impact their daily work.