The first merit matrix was introduced in the early 1970's.  At that time merit pay was seen as a great way to manage employee performance and it seemed to work well with pay increases in the double digits.  Today is a different story, trying to incorporate a performance element when budget increases are 2 or 3% is difficult at best.  A merit matrix allocates budgeted dollars to employees based on two factors: 1) their performance; and 2) their salary's position in the salary range and/or in the market.  However, the merit matrix may not be in line with your compensation philosophy nor meet your salary administration needs by allocating dollars to where you need them most. 

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