Merit pay can be given in the form of lump-sum payments or as increments to the base pay.
Employees must have been employed by Southern Methodist University as of January 31 of the current year to be eligible for a merit increase allocation. The budget allocation is determined by taking a certain percentage of base salaries as of January 31, which designates a pool of money for a manager to distribute. The amount is determined each year at the board meeting in February and is currently 3.0%. Merit
Increase Guidelines are built around a 3.0% total budget. The 3.0% merit pool will be split out into two components: (1) - 2.0% of the pool will be reserved for base salary increases and will be a reoccurring expense and (2) - 1.0% of the pool will be reserved for one-time merit payments, a non-reoccurring expense. Although the merit pool allows for variability in what is given to individual employees, overall merit increases awarded for your area must not exceed your allocations, unless you are given prior approval. We will be comparing the merit increases awarded to the allocations provided to ensure that overall base salary increases do not exceed the 2.0% allocation and one-time lump sum merit payments do no exceed
the 1.0% allocation. Any overall variances identified will be discussed with the appropriate unit so that adjustments can be made to bring the merit increases awarded in line with the budget provided. Managers are encouraged to distribute merit dollars strategically. Doing so will help motivate, reward, and retain high performers, differentiating employee performance and rewarding performance accordingly. With this
in mind, we discourage across-the-board increases of 2.0% or 1.0% pools. The distribution below provides some guidance around strategic distribution of merit dollars: The merit increase process gives the manager an opportunity to send a clear message ― that excellent performance matters. Treating merit as a “cost of living” increase by distributing
the same percentage increase to everyone leaves the impression that performance is not truly valued. Managers who don’t strategically link merit increases to performance run the risk of lowering the motivation of top performers, and of encouraging a standard of mediocre performance from others. Using this opportunity to recognize and reward high performers can support the manager’s goal of retaining top talent. This process empowers managers, and also requires accountability and
responsibility. Managers must play an active role in assessing employee performance, having ongoing conversations with employees about their performance, and rewarding employees accordingly. Below is an example how a manager could spend their merit dollars: Employee Base Salary Job Title Range Job Performance 2.0% Merit 1.0% One-Time Merit Payment John Smith $55,000 Assistant Director 3 $41,469 - $73,833 Meeting Expectations $2,500.00 $0 Jane Doe $60,000 Coordinator 2 $32,895 - $58,604 Exceeding Expectations $0 $1,350.00 Susan Green $50,000 Coordinator 2 $32,895 - $58,604 Exceeding Expectations $2,200.00 $1,000.00 Frank Harris $70,000 Sustainability Administrator $52,270 - $93,029 Not Meeting $0 $0 2% Merit Budget: $4,700 1 % Lump Sum Merit Budget: $2,350 Questions about facilitating productive performance discussions? E-mail: or call x8-3311 and ask for a member of the Employee Relations team. What is a lumpWhat is a lump-sum merit pay? Lump-Sum merit pay is a single cash payment, separate from the base salary and provided in place of a salary increase.
What is merit pay system?Merit pay refers to a performance-related pay which provides bonuses or base pay increases for employees who hit the target or perform their jobs effectively, according to measurable criteria over a predetermined period of time.
What is the difference between merit pay and performance pay?One of the major differences between merit pay incentives and pay for performance is that merit pay incentives are based on individual performance while pay for performance may be based on individual, team or even organizational performance.
What is the major difference between merit pay and a bonus?Are Merit pay and Bonus the same? Merit pay is different from a bonus in that it is frequently added to or incorporated into the employee's base compensation, whereas a bonus is a one-time payment. The distinction between incentives and merit raises is that incentives are only in place for a limited time.
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