Work out merit increase budget instantly with clear inputs, formula shown and shareable results.
A merit budget is a fixed percentage of payroll, so differentiation is zero-sum: rewarding top performers meaningfully requires paying others less than the average. Allocating 40% of the pool to the top 15% roughly triples their increase relative to the rest.
Merit pool
Pool = Total payroll x Merit budget %
Top performer increase
Top increase = Pool x Top share % / Number of top performers
A meaningful difference is usually at least twice the average increase. Anything less is not noticed and does not change behaviour.
Better to keep a separate promotion budget, otherwise promotions consume merit money and squeeze increases for everyone else.