Merit-based pay is a compensation system where employees receive financial rewards based on their performance and contributions to the organization. This approach aims to motivate workers to excel in their roles by linking pay increases, bonuses, or promotions to individual achievements and productivity levels. In a merit-based pay system, evaluations are often conducted through performance reviews, where managers assess employees' work quality, skills, and accomplishments. This method encourages a culture of excellence and accountability, as employees are incentivized to improve their performance to achieve higher pay and recognition within the workplace.