Merit Matrix

The matrix uses two variables to determine a percentage raise:

1. Performance Rating: How well did the employee do? (e.g., 1–5 scale)
2. Compa-Ratio (Position in Range): Where is their current pay relative to the market midpoint?

The Logic

• High Performance + Low Compa-Ratio = Highest Raise (Accelerated growth to reach market rate). • Low Performance + High Compa-Ratio = Lowest Raise (To avoid overpaying for the role).

The Merit Matrix Template

Assumes a total merit budget of 3%__.

Performance Rating	Low Compa-Ratio (<90%)	Mid Compa-Ratio (90–110%)	High Compa-Ratio (>110%)
5 - Exceptional	6% – 8%	4% – 6%	3% – 4%
4 - Exceeds Expectations	4% – 6%	3% – 4%	2% – 3%
3 - Meets Expectations	3% – 4%	2% – 3%	1% – 2%
2 - Below Expectations	0% – 1%	0%	0%
1 - Unsatisfactory	0%	0%	0%

4 Steps to Implementing Your Matrix

1. Define Your Budget

Total up your current payroll and apply your company's increase percentage (e.g., 3%). This is your "pot." When designing the percentages in the table above, ensure the average raise across the company stays within this budget.

2. Segment Your Workforce

Place every employee into one of the nine (or fifteen) "buckets" based on their most recent performance review and their current compa-ratio.

3. Apply the Percentages

Notice how the matrix automatically corrects pay gaps. An employee who is "Exceptional" but currently underpaid (low compa-ratio) gets a significant boost to bring them toward the midpoint quickly.

4. Review for "Red-Circle" Employees

If an employee has a compa-ratio above 120% and is already at the top of their pay band, consider a Lump Sum Bonus instead of a base pay increase. This rewards their performance without permanently inflating your fixed costs.

Why Use This Approach?

• Objectivity: It removes "manager bias" and "negotiation skill" from the raise process. • Retention: It prioritizes keeping your "High Performers" who are currently underpaid your highest flight risks. • Transparency: You can clearly explain to an employee why they received a specific raise based on data.