Skip to main content
Salary PlanningSalary Planning and Merit Increases

How to implement an effective merit pay system

By April 17, 2017January 16th, 2023No Comments

The Complete Guide to Merit Pay Systems

By providing incentives and rewarding performance, Merit Compensation initiatives can drive desired behavior and help companies achieve their strategic objectives.

Merit Compensation takes a number of forms, including:

  • Employee performance plans for salary, promotions and/or bonuses
  • Team performance bonuses to reward the accomplishment of project goals
  • Executive bonus structures to ensure accountability for organizational goals

Tailor Merit Compensation Initiatives to Specific Groups

Stakeholders Through the Entire Organization

A company’s Merit Compensation process affects the entire organization. Whether it’s developing the plan, setting the objectives, implementing the reward structure, managing the employees and teams, or, allocating the actual awards, every part of an organization is involved in the merit compensation process.

Understanding how each department is impacted can help to ensure that merit pay systems are optimized to meet the needs of the full organization.

Human Resources (HR): Strategic HR departments create compensation programs that reinforce a pay-for-performance strategy that drives all levels in the organization.

Finance: Finance departments track financial payout metrics such as revenue, margin and profitability, accrue the expected pay-for-performance payout, track the actual cost of compensation, as well as conducting financial analysis and forecasting future revenues.

Management: C-suite executives and management teams establish the desired behaviors by setting company strategy, identifying market and product priorities, then reviewing the plan’s outcomes.

All Business Units: Employees in all business units – including C-suite executives setting strategy, managers leading teams and front-line employees executing the plans – are participants in merit compensation plans.

Effective Communication – An Essential Part of Managing Merit Compensation

To fulfill its purpose, Merit Pay Systems rely on effective communication.

Merit Compensation only works if all participants understand and buy into the plan. They must understand the plan’s structure, rules and parameters, and have ample knowledge to successfully achieve the performance levels necessary to reach the incentive rewards.

To keep the process working effectively, companies must clearly communicate the fundamentals of:

  • Company strategy and objectives
  • Individual or team goals
  • Reward Structure
  • Methods of calculation
  • Potential payouts
  • Timelines of the merit compensation plan

Automated Workflow and Enhanced Communication

Incentive Compensation Management (ICM) technology provides automated workflow that facilitates improved communications between stakeholders. Specifically, an automated process provides an integrated internal workflow between HR, Finance, Executives and Management, and the various Business Units.

For example, an automated process facilitates communications benefits such as:

  • Worksheet approvals, adjustments, comments and overrides
  • Alert configuration
  • Automated bonus suggestions, ranges and budget allocation
  • Monitoring the status of approvals and budgets
  • The ability to manage “Batches” of worksheets

An automated workflow also facilitates other aspects of financial management and strategic planning.

Greater Forecasting and What-If Analysis

Better Reporting and Forecasting: Leveraging ICM, the strategic planning and goal-setting process is data­ driven.

Improved Analytics: ICM enables effective reporting, analytics that will facilitate monitoring performance and evaluating the effectiveness of merit compensation.

Reliable Audit Trails: With an automated workflow, organizations can rely on the ICM system for producing accurate, reliable audit records.

Best Practices on Effective Communication and Merit Compensation

Effective communication will improve the flow of information between participants and help employees internalize the merit compensation plan. As the Merit Compensation plans are rolled out, companies must practice effective communication to share information about the plan’s rules and parameters.

As a best practice, Merit Compensation should be a regular part of organizational communications, including:

  • Manager-employee meetings and/or performance reviews
  • Company Intranet
  • New Staff Orientation
  • As an agenda item at staff meetings or all-hands events

All plans should have a starting date and ending date. Otherwise participants will come to expect it as part of their ongoing compensation structure.

Communicating the merit compensation plans benefit from the appointment of a senior-level champion who openly touts the initiative. By seeing a senior person adopt the plan, employees are more likely to accept it. Employee buy-in also increases if well respected, non-management members help communicate the plan to their peers.

Evaluation is also critical. To determine if a plan was successful in meeting its objectives, it must be reviewed. Review the outcomes, compare against historical baselines and start-of-period numbers, and then compare with expected attainment. An automated system makes this process much more accessible.


Merit Compensation only works when everyone understands and internalizes the plan.

How do you keep everyone informed and everyone pointed in the right direction?

You communicate effectively, ensure everyone has access to the Merit Compensation process, and leverage the automated workflow to keep people informed, engaged and focused on the company’s overall goals.

Iconixx Merit and Salary Management Solution

Manage your salary and merit compensation plans with enhanced transparency and ease-of use.

Management, Human Resources, Operations and Finance professionals too often struggle with multiple, complicated processes for managing salary payouts, making it easy to design, create and manage custom compensation plans that fit your business needs.

Salary Worksheet and Management Approvals

Iconixx Merit gives you the ability to view and approve large hierarchies of salary and payout information. “Worksheet” functionality, allowing users to quickly view, edit, update, change, and approve their bonus plans through:

  • Worksheet approvals, adjustments, comments, and overrides
  • Worksheet linked with alert configuration
  • Automated bonus suggestions, ranges and budget allocations
  • Setup and manage “batches” of worksheets
  • Monitoring the status of approvals and budgets
  • Setup budgets using forecasting and “What-If” Analysis

Integrate Internal Workflow

Salary and compensation processes extend beyond one department. Managing workflow between field representatives, HR, Management, Operations, and Executives is crucial. lconixx Merit seamlessly coordinates the input of all users with customization, security and ease-of-use. The integrated workflow allows for:

  • Maintenance: Users can easily setup and maintain custom approval hierarchies, groups, email notifications, status, escalation, file attachments, and other custom functions
  • Subject Types: Users can apply stock features “out-of-the-box” or create custom features for managing worksheets, document approvals, and HR actions
  • Security: Integrates processes with overall auditing and reporting, so Sarbanes-Oxley compliance can be easily managed

Reporting and Analytics

Iconixx Merit allows you to create the right reports at the right time, with three options for reporting:

  • Generate automatically scheduled reports: Reporting interface includes standard templates for pay statements, total compensation budget allocation, pool distribution, etc.
  • Create Ad-Hoc Reports: Ad-Hoc interface allows the user to create criteria and filters, organize columns and save custom reports
  • Data Analysis: Has “drill-in” ability to examine the data in many ways, then export the data to XLS, XML, CSV or PDF


Iconixx Merit features a simple, configurable, security-based dashboards with all the information in one place:

  • Reports: Managers easily view reports (pay statements, bonus allocations, budgets, etc.) for all employees and teams
  • Real-Time Data: Managers and their personnel have immediate access to their year-to-date salary, quotas and transactions
  • Workflow Inbox: Access to a role-based “Inbox” with related workflow items; including worksheets, adjustments, and customized elements

Forecasting and “What-If” Budgeting

Iconixx Merit allows you to forecast the impact of compensation plans before activation, through two views:

  • View total potential payouts: View side-by-side comparisons of incentives by individual, plan or team factors
  • Budgets: Estimate payout amounts wile estimating scenarios for accruals and finance

Application Security and Roles

Your complex organization requires controlled and role-specific security. The entire Iconixx suite empowers administrators to create security roles and groups to refine the user’s ability to view, edit, update, and print data. The solution uses a simple set of interfaces to grant or revoke access to dashboards, workflow processes and compensation plan administration.

Iconixx Merit™ makes it easy for any business to design and manage merit and salary plans with flexibility, transparency, and accessibility. If your organization needs the capacity to view and approve hierarchies of subordinate-based pay information, the powerful, easy-to-use functionality of Iconixx Merit™ will eliminate errors and reduce planning time.

Leave a Reply

Close Menu
Ballast Point Ventures

Ballast Point Ventures is a later-stage venture capital fund established to provide expansion capital for rapidly growing, privately owned companies in diverse industries, with a particular emphasis on companies located in Florida, the Southeast, and Texas. The BPV partners have more than 70 years of combined experience investing in and building high-growth companies in a number of industries, including healthcare, business services, communications, technology, financial services, and consumer goods. BPV has $200 million under management and seeks to make equity investments ranging from $3 million to $10 million.

Harbert Management Corporation

Harbert Management Corporation seeks to generate superior returns for their investors by identifying and investing in the most promising early growth stage companies in the Southeastern U.S. HMC seeks to capitalize on what it believes are compelling regional dynamics, such as a strong and fast-growing economy, significant research and development activities, and an established entrepreneurial community. The HMC team combines substantial investment, advisory, and operating experience with capital and networking contacts to support great entrepreneurial teams in successfully executing their growth plans. With offices in Birmingham, Alabama; Richmond, Virginia; and Gainesville, Florida, it’s well positioned to partner with entrepreneurs throughout the Southeast.

KBH Ventures

KBH Ventures was an early investor in Iconixx Software. KBH's investment philosophy plays a significant role in the firm's successful track record. KBH believes in running businesses to be cashflow positive and profitable every month. Startups and companies in a startup mode, such as one that has been purchased in distress, are expected to generate revenue within the first six months and reach profitability within the first 12 to 18 months. KBH also only invests in or acquires companies that are in the startup phase or have less than $20 million in revenues. KBH targets technology companies that offer business-to-business services.

S3 Ventures

S3 Ventures is an early expansion and growth stage venture firm with $200 million under management. It’s focused on information technology solutions that solve large business problems. S3 also invests in medical devices that improve the human condition. S3 invests in category-defining opportunities. It partners with the team and help focus methodically on what it takes to build a successful company. S3 today helps talented entrepreneurs take their technology and market knowledge and form valuable businesses in a repeatable fashion. Investment sizes start at several million or more for Series A, B, and C financing.