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Why Merit Pay Isn’t Always Fair

June 22, 2026 / 00:52

This episode discusses employee merit pay increases, inflation impacts, and fairness in compensation. Key topics include the effects of modest pay raises on real income and the challenges of rewarding high-performing employees.

The conversation highlights how average pay increases are falling below inflation rates, leading to real income cuts for employees receiving only merit pay. The discussion emphasizes the dilemma of compensating employees who meet expectations versus those who exceed them.

Specific examples illustrate the struggle of balancing limited budget resources with the need to reward high performers without penalizing those in less discretionary roles.

TLDR

The episode examines the challenges of merit pay amidst inflation and budget constraints.

Episode

0:52
00:00:00
These increases are so modest, right? So, they are this year going to be the average below the rate of inflation,
00:00:07
right? So, that means that if everybody got just the merit pay increase, they're
00:00:12
all losing slightly to inflation. But, how about those employees who are doing just what you're telling them to do? You
00:00:18
got an office job, you don't have a lot of discretion over what you do. Um do you give them a zero? In which case
00:00:25
they're taking a 3% real income cut, right? Cuz inflation is at least 3% or so. They shouldn't get punished because
00:00:33
they don't even have the opportunity to do more. But, the other side is, as you say, we have some people in some jobs
00:00:39
who are doing really well. Shouldn't they get more than inflation? But, there's the rub. We don't have very much
00:00:45
money to spread around.

Episode Highlights

  • Merit Pay Increases
    This year’s merit pay increases fall below inflation, impacting real income for employees.
    “If everybody got just the merit pay increase, they're all losing slightly to inflation.”
    @ 00m 10s
    June 22, 2026

Episode Quotes

  • They shouldn't get punished because they don't even have the opportunity to do more.
    Why Merit Pay Isn’t Always Fair
  • But, there's the rub. We don't have very much money to spread around.
    Why Merit Pay Isn’t Always Fair

Key Moments

  • Income Cuts00:25
  • Merit Pay Dilemma00:37
  • Budget Constraints00:45
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