The HR Leader’s Guide to Merit Cycles

When done right, merit cycles aren’t just a way to reward employees for past performance. They’re a powerful tool to boost retention by motivating employees to build a future with your company. This is especially important during times of economic uncertainty when companies can’t hire or backfill roles. 

A recent study revealed employees of companies who prioritize recognition are 3X more loyal to their employers and 5X as likely to see a path for growth at their organizations.

On the flip side, without a thoughtful strategy, a merit cycle can lead to attrition by demoralizing employees who fall short of goals or who are disappointed by their merit increase. It can also cause an employee who doesn’t understand how merit adjustments are determined to perceive an inequity when comparing their reward to a colleague’s. But inequities can exist, especially if you lack a plan for consistent decision-making.

A successful merit cycle doesn’t mean doling out the biggest increases your company can afford. It’s about creating a clear, data-driven process that shows employees you pay and reward fairly, while creating a satisfying employee experience. 

About this guide

To help HR leaders, this guide provides 12 key steps for planning and running a motivating and equitable merit cycle that helps keep top performers. Whether you’re planning your first merit cycle, or already have a few in the books, you’ll find tips to help both companies and employees get the best out of the process.