Opinion: stop calling it merit pay when the whole budget is two and a half percent

Agree with the original post. We made the same change at a Canadian credit union and the conversation manager to employee improved at once. 'Your pay is at 94% of the market rate for your job and this moves you to 97%' is something people can understand and check.

This only works if there is a bonus plan with real spread. Half our population has no variable pay. For them the annual increase is the only place performance can show up at all.

Both things can be true. We keep performance in the base pay decision, but only at the extremes: the top 10–15% get an accelerated move toward the reference point, and the bottom few percent get nothing. The middle 80% is purely market position. Nobody calls it merit any more.

The compounding argument is the strongest one against me and I do not have a full answer. What I would say is that promotions and market adjustments are where most long-run base pay growth really comes from. And the point about people with no bonus is fair. Our approach assumes one.