Merit pay is when an employee gets paid based on their performance or output; this type of pay is based on specific, achievable, measurable targets. 

With a merit pay, the employee is provided with bonuses or an increase; a merit pay is usually awarded to employees that hit a target over a set amount of type, this is usually done in positions with the sales and customer service sector. Employees working within the sales department are most of the time given a set target of how many sales should be made within a set period of time.