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Definition

Merit pay or Merit Raise

Merit pay or merit raise is any salary increase the firm awards to an individual employee based on his of her individual performance. It is different from a bonus in that it usually becomes part of the employee’s base salary, whereas a bonus is a one-time payment. Although the term merit pay can apply to the incentive raises given to any employee—exempt  or nonexempt, office or factory, management or non-management– the term is more often used for while collar employees and particularly professional, office, and clerical employees.

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