What is a key characteristic of merit pay?

A key characteristic of merit pay is that it constitutes a permanent increase in an employee's compensation that is directly tied to their performance evaluations. This means that when employees demonstrate exceptional work and meet or exceed performance standards, they receive a salary increase that reflects their individual contributions. This system is intended to motivate employees to continuously improve their performance and align their efforts with organizational goals.

In contrast, other compensation methods may not provide the same emphasis on individual performance or may be structured differently. For instance, merit pay is distinctly designed to reward personal achievements rather than broader team outcomes or collective accomplishments. Understanding this mechanism helps reinforce the importance of performance assessments in determining compensation and fostering a high-performance culture within organizations.