A merit matrix is a tool that helps managers decide how much of a merit increase to give employees.
It is used by employers to provide guidance to managers about how much of a merit increase to provide to employees. The goal of the employer is to stay within their budget and provide higher performers with a higher increase than lower performers. And in some cases, the position in range or compa-ratio is used as well.
In the image associated with this post, you will see the first alternative that is only performance based. It doesn’t consider the position in range. And it provides a merit increase range that the manager can choose from. You could also provide a single value for each performance rating instead of a range.
In the second alternative, there are two factors. The performance rating and position in range are used to determine the merit increase range the manager can use to decide what merit increase to give to an employee. The employer could also choose to use compa-ratio instead of position in range. And they could use a single value instead of a merit increase range.
In other words, there are many merit matrix alternatives.
1A – Performance based with a merit increase range
1B – Performance based with a single value
2A – Performance and position in range with a merit increase range
2B – Performance and position in range with a single value
2C – Performance and compa-ratio with a merit increase range
2D – Performance and compa-ratio with a single value
And an employer can choose to provide a merit increase recommendation for each eligible employee based on one of these alternatives, and then ask managers to provide exception rationale if they want to do something different than the recommendation.
This is often used by employers that want a simple to administer merit program with limited manager discretion. The exceptions are then reviewed by HR and the executive leaders to ensure that the exceptional employees are treated in a consistent manner.
And regardless of the alternative you choose to implement, always test each scenario to ensure you know how the budget will be spent across your eligible employee population. The performance rating distribution and budget can cause you to adjust the singe value or merit increase range in the merit matrix to ensure you are providing guidance that is aligned to your employer’s goals.
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