Three Approaches to Merit Pay There are limitless ways to award performance-based increases. This guide highlights three common approaches that you may wish to consider. The options are arranged from least to most structured. Please note that the success of any merit increase model is highly dependent on the ability to: Identify and sort people into unsatisfactory and low performance categories Award increases to top performers that are 75-80% higher than the 2.5% increase. This translates to an increase of 4-5%. MODEL 1: UPSIDE POTENTIAL (BONUS OR INCREASE) FOR HIGHEST RANKED PERFORMERS Best used when: A simple approach to budgeting, administration and communication is desired There is less than fully optimal structure around job assignments and/or related market data The unit is distributing a merit increase pool that is below, at, or above the University-Wide recommended merit increase 0% Given to unsatisfactory and low performers 2% Given to all employees who are performing proficiently and beyond expectations Additional Increase* Given to the highest performers in the college / unit *The additional increase percentage should be determined by identifying the remaining dollars in the merit increase pool, determining the award amount the unit would like to provide to the highest level performers, then dividing the remaining pool by the desired dollar amount. This will tell you how many employees can receive this additional increase. The increase could be added to base or awarded as a lump sum depending on the unit’s ability to pay. MODEL 2: PERCENT INCREASE AWARDED BASED ON PERFORMANCE RATING Best used when: A simple approach to budgeting, administration and communication is needed There is less than fully optimal structure around job assignments and/or related market data The unit is distributing the University-Wide recommended merit increase or a larger percentage Using 3 Sort Categories Lowest 1/3 Middle 1/3 Top 1/3 0-1% Increase At/Slightly Below 2.5% Increase 4-5% Increase (0% for unsatisfactory performance) Using 4 Sort Categories Unsatisfactory Requires Improvement Proficient Exceeds Performance / Outstanding 0% 1% At/Slightly Below 2.5% 4-5%
Three Approaches to Merit Pay There are limitless ways to award performance-based increases. This guide highlights three common approaches that you may wish to consider. The options are arranged from least to most structured. Please note that the success of any merit increase model is highly dependent on the ability to: Identify and sort people into unsatisfactory and low performance categories Award increases to top performers that are 75-80% higher than the 2.5% increase. This translates to an increase of 4-5%. MODEL 1: UPSIDE POTENTIAL (BONUS OR INCREASE) FOR HIGHEST RANKED PERFORMERS Best used when: A simple approach to budgeting, administration and communication is desired There is less than fully optimal structure around job assignments and/or related market data The unit is distributing a merit increase pool that is below, at, or above the University-Wide recommended merit increase 0% Given to unsatisfactory and low performers 2% Given to all employees who are performing proficiently and beyond expectations Additional Increase* Given to the highest performers in the college / unit *The additional increase percentage should be determined by identifying the remaining dollars in the merit increase pool, determining the award amount the unit would like to provide to the highest level performers, then dividing the remaining pool by the desired dollar amount. This will tell you how many employees can receive this additional increase. The increase could be added to base or awarded as a lump sum depending on the unit’s ability to pay. MODEL 2: PERCENT INCREASE AWARDED BASED ON PERFORMANCE RATING Best used when: A simple approach to budgeting, administration and communication is needed There is less than fully optimal structure around job assignments and/or related market data The unit is distributing the University-Wide recommended merit increase or a larger percentage Using 3 Sort Categories Lowest 1/3 0-1% Increase (0% for unsatisfactory performance) Middle 1/3 At/Slightly Below 2.5% Increase Top 1/3 4-5% Increase Using 4 Sort Categories Unsatisfactory 0% Requires Improvement 1% Proficient At/Slightly Below 2.5% Exceeds Performance / Outstanding 4-5%