Merit pay, also referred to as pay-for-performance or performance-based pay, is a compensation system in the field of human resources where employees are rewarded with salary increases or bonuses based on their individual job performance. This approach aims to motivate and recognize employees who consistently excel in their roles and contribute significantly to the organization's success.

Example

In a corporate setting, an employee who consistently meets or exceeds their sales targets may receive a merit pay increase in addition to their base salary. This extra compensation serves as a direct reward for their exceptional performance and encourages them to continue delivering outstanding results for the company.