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Merit Increase Guidelines
Merit increase guidelines are an effective aid for a management team during the merit administration process. When properly designed, they will ensure an appropriate distribution of the salary increase budget based on performance.
Most merit increase guidelines are designed to provide top-tier performers with increases of 150%-200% over satisfactory performers. Here is an example of a merit matrix that stretches the merit opportunity to recognize top performers.
Example
Approvals of Recommended Increases
Assuming a focal review cycle is in place, management recommendations should be rolled up by department for approvals and then into one consolidated document for top management approval and payroll administration. Once this has been accomplished, notification can be sent to the management team that the recommended salary increases have been approved and processed to payroll. Management should have access to their approved reports.
Employee Communication
Prior to the development of a new compensation plan, it is important to address how employees' current compensation will be protected. Employee relations issues can be minimized by grandfathering employees' current compensation, such as in the example statement below:
As a result of the new compensation plan implementation, all regular employees' salary opportunity will be managed to their current salary range maximum or the new salary range maximum, whichever is higher. This "grandfathering provision" applies to the current position held as of December 31, 2025, provided that the employee remains in active status and maintains acceptable performance or above.
Ongoing communications is always appreciated by managers and employees alike.
Once completed, it is important to formally communicate the results of the new compensation plan. HRIS systems with employee and management access are an effective tool to communicate total rewards programs and status changes. Even if you do not have a sophisticated system, mail merge on Microsoft Word and Excel is excellent for distributing individual, customized email employee communications. Consider the use of email, mobile technology, blogs, microsites, and even face-to-face communications for communicating your pay plan.
It’s always a good idea at the end of a merit cycle to provide the departmental manager with confirmation of the approved salary changes. Approved salary increases should be formally communicated to each employee by the responsible manager. Ideally, they will receive a standardized communication informing them of the increase. Total Compensation Statements are an effective way to do this as they show employees the true value of their Total Rewards package.
Example
To:
Date:
Subject: 2025 Approved Merit Increase
Dear _________, Thank you so much for your efforts over the last year! This will confirm that you have been approved for a merit increase effective July 1, 2025, as follows:
Description From To % Change Job Title Pay Grade (Optional) Pay Range (Optional) Base Salary Bonus at 100% Target Total Compensation at 100% Target This increase has been processed to payroll and will be reflected on the last payroll in July, less any required payroll withholdings
We appreciate your commitment and important contributions toward the success of our department and ABC company. Your performance truly makes a difference!
Sincerely, Department Head
Memory Jogger
Which of the following is a good merit increase practice: