Bonus or Salary Increase: Which Type of Raise Is Best For You?

Eileen Hoenigman Meyer

It’s always good news when you learn that you’re getting a boost in pay. But there’s a range of possibilities for what a raise can look like.

Some companies offer an annual raise that functions as a cost of living increase (COLA). This boost in pay is applied across the board to bump up all employees’ salaries, allowing paychecks to keep pace with inflation.

Other companies offer bonuses, known as merit-based raises, that are applied using a metric to evaluate and reward each employee’s professional contribution. Offering merit-bases raises or other variable pay such as bonuses tends to be favored over applying an annual one-size-fits-all COLA.

Read on to learn some other differences between a COLA and a merit-based raise, along with what each suggests about employee performance.

Cost of Living Increase

Government jobs, as well as some non-profit sector position, adhere to the cost of living salary increase model. In December 2015, for example, President Obama announced that all federal employees would earn a 2016 pay increase of 1.3%. Those in more expensive cities like Washington D.C. or San Francisco earned a slightly higher raise to account for their higher cost of living. When a flat-rate salary increase is given across the board to all employees, it is likely a COLA.

While a pay raise is always welcome, it can be a bit of a blow to morale when everyone earns the same pay raise, regardless of how well each person did his or her job. In some cases, a merit raise can be applied on top of the COLA. This way, the raise functions both as a means to ensure that all employees get a needed boost, and exemplary employees earn their proper nod.

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