A raise and merit pay are both forms of compensation increases for employees, but they differ in their underlying principles and how they are administered:

A raise refers to an increase in an employee’s base salary. It is a broader term that encompasses any adjustment to an employee’s regular pay rate, whether it’s due to factors like inflation, cost of living adjustments, or changes in market conditions.

Merit pay, on the other hand, is a compensation approach that rewards employees based on their individual performance and contributions to the company. It’s often given as a salary increase, similar to a raise, but the key distinction is that merit pay is tied to performance evaluations and individual accomplishments.