<div class="tldr">
  <h2>TL;DR</h2>
  <ul>
    <li>Performance-based pay raises promote fairness and recognise individual achievement.</li>
    <li>They motivate employees by rewarding hard work and encouraging continued excellence.</li>
    <li>Merit-based raises help retain top talent by incentivising ambition and productivity.</li>
    <li>Clear, metric-based criteria and manager training are essential for fair evaluations.</li>
  </ul>
</div>
<p>Tenure is an important factor to consider when deciding whether to increase an employee's pay. </p>
<p>Still, merit-based pay increases are essential to <a href="https://clutch.co/hr/staffing" target="_blank" rel="nofollow noopener">recruiting and retaining top talent</a>. </p>
<p>Pay raises should prioritize performance over tenure because they:</p>
<ul>
<li>Demonstrate your company's commitment to fairness</li>
<li>Show employees that their hard work matters</li>
<li>Recognize individual achievement</li>
</ul>
<p>In this article, we explain why performance-based raises are critical to recognising, motivating, and retaining your top talent. You can use this information to help evaluate and improve how your company grants pay raises.</p>
<h2><strong>Merit-Based Raises Demonstrate Your Commitment to Fair Treatment</strong></h2>
<p>Employees want to be treated fairly, and when they excel, they want to be rewarded for it.</p>
<p>Tying pay raises to worker performance demonstrates a commitment to fairness, and proves that your company values high-quality work.</p>
<p>To ensure the fairness of your merit-based pay raises, tie employees' performance to metric-based achievements. Consider granting raises to the highest achievers, or set a goal-based plan that awards pay increases based on specific criteria. </p>
<p>For example, in 2018/2019, the University of California MERCED's merit pay program allowed pay raises as high as 3.25% for employees who successfully met expectations, and up to 4.50% for employees who far exceeded expectations.</p>
<pre><img src="https://www.ismartrecruit.com/upload/blog/merit.webp.dat" alt="merit pay metrix" width="1000" height="332"></pre>
<p>Setting performance-based guidelines in advance allow all employees to work toward higher pay and feels fairer because people know what they need to do to earn higher wages.</p>
<p>Training your managers on how to evaluate employee performance is critical to the success of performance-based pay raises, and providing employees with clear and transparent guidelines is essential to providing everyone the same opportunity.</p>
<p>A structured, merit-based pay system acknowledges that your company cares about treating its employees fairly and demonstrates a commitment to recognising their best work.</p>
<h2><strong>Merit-Based Raises Show Employees Their Hard Work Matters</strong></h2>
<p>Merit-based raises help motivate your best workers. </p>
<p><a href="https://www.ismartrecruit.com/blog-5-reasons-employer-should-stay-connected-with-the-former-employees">Employees</a> who receive higher pay raises feel recognised for their work and are motivated to continue performing their best.</p>
<p>Tenure-based raises that put all employees on the same pay raise schedule do an injustice to your business because they encourage workers to look for a new job when they want to earn more money.</p>
<p>Performance-based raises, on the other hand, incentivise ambitious employees to stay with your company.</p>
<h2><strong>Merit-Based Raises Recognise Individual Achievement</strong></h2>
<p>Most employees (66%) feel that people with the same job title should have the same level of responsibility, yet more than one-quarter feel they are taking on more responsibility than their peers.</p>
<pre><img src="https://www.ismartrecruit.com/upload/blog/Merit-Based_Raises_Recognize_Individual_Achievement.webp.dat" alt="Merit Based Raises" width="1260" height="750"></pre>
<p>Employees develop differently, and some do take on more than their coworkers with the same title.</p>
<p>Recognising ambitious employees is critical to retaining top talent because high-achievers are likely to look outside the organisation if they don't feel there are other options for pay increases.</p>
<p>Merit-based systems provide the opportunity for employers to bring individual job performance to the forefront, measuring milestones, productivity, and achievement with metrics that prove which employees are truly excelling.</p>
<p>Tying pay raises to individual performance with a transparent merit-based system helps some employees feel appreciated while guiding others toward better productivity.</p>
<p>When you give merit-based raises, you acknowledge the value that employees bring your company and its operations, hopefully spurring employees to take ownership and pride in their work.</p>
<h2><strong>Pay Raises Should Include Performance Considerations</strong></h2>
<p>Awarding pay raises based only on tenure can cause companies to lose some of their highest-performing and most ambitious talent. Consider implementing a metrics-based performance review system to help your business retain its top talent.</p>
<p>Seamus Roddy is Clutch's human resources content and research lead. He produces content that helps businesses determine their HR services needs, which they can meet using Clutch's data-driven research, ratings, and reviews.</p>
<div class="faqs">
  <h2>FAQs - Frequently Asked Questions</h2>
  <h3>Why should pay raises be based on performance instead of tenure?</h3>
  <p>Pay raises based on performance reward hard work and results, encouraging employees to excel. It creates fairness and motivates high achievers, unlike tenure-based raises that reward time rather than contribution.</p>
  <h3>How can companies ensure fairness in performance-based raises?</h3>
  <p>Using clear, metric-based criteria and training managers to evaluate fairly ensures everyone understands what is needed. Transparency helps employees see how raises are earned, promoting trust across the team.</p>
  <h3>What impact do merit-based raises have on employee motivation?</h3>
  <p>Merit-based raises make employees feel valued for their efforts, which inspires continued dedication. This approach helps retain top talent by rewarding ambition and individual achievements.</p>
  <h3>Can performance-based raises help retain top talent?</h3>
  <p>Yes, rewarding employees according to their achievements encourages ambitious workers to stay. It shows that hard work is noticed and appreciated, which boosts loyalty to the company.</p>
</div>