To make the merit increases consistent, so
they will be seen as fair, many merit pay programs use a merit increase grid, such as the
sample for Merck, the giant drug company, in Table 12.1 . As the table shows, the decisions
about merit pay are based on two factors: the individual’s performance rating and
the individual’s compa-ratio (pay relative to average pay, as defined in Chapter 11).
This system gives the biggest pay increases to the best performers and to those whose
pay is relatively low for their job. At the highest extreme, an exceptional employee
earning 80 percent of the average pay for his job could receive a 15 percent merit raise.
An employee rated as having “room for improvement” would receive a raise only if
that employee was earning relatively low pay for the job (compa-ratio of .95 or less).
By today’s standards, all of these raises are large, because they were created at a time
when inflation was strong and economic forces demanded big pay increases to keep
up with the cost of living. The range of percentages for a policy used today would be
lower. Organizations establish and revise merit increase grids in light of changing economic
conditions. When organizations revise pay ranges, employees have new comparatios.
A higher pay range would result in lower compa-ratios, causing employees to