What is merit pay designed to do?

Merit pay is designed to increase an employee's base pay on a permanent basis, reflecting their past performance evaluations. This approach aims to incentivize and reward individuals who have demonstrated exceptional performance in their roles. By doing so, merit pay aligns the compensation strategy with individual contributions, fostering a culture of high performance and motivating employees to enhance their productivity and effectiveness.

In this context, permanent increases signal to employees that their efforts and achievements are recognized and valued by the organization, encouraging them to continue striving for excellence in future work. The focus on previous evaluations ensures that merit pay is based on documented performance rather than subjective measures, promoting fairness and transparency in how compensation is determined.

The other options do not accurately represent the concept of merit pay; they focus on broader organizational performance or temporary adjustments rather than the individual performance-focused and permanent nature of merit-based salary increases.