In an effort to "provide something to everyone," organizations may lump merit pay and cost of living increases together.This action dilutes the relationship between merit pay increases and performance.

Merit Pay

Compensation added to an employee's base pay based on performance, aimed at rewarding excellence and encouraging high productivity.

Cost Of Living

The amount of money needed to sustain a certain level of living, including basic expenses such as housing, food, taxes, and healthcare.

Performance

The level at which an individual, group, or system executes tasks and responsibilities, often measured against pre-set standards.