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 their pay to measurable outcomes, such as productivity, quality of work, or achievement of specific goals. In a merit-based pay system, evaluations are typically conducted through performance reviews, where managers assess an employee's work and set criteria for rewards. This method is often used in various sectors, including education, corporate environments, and public service, to encourage high performance and retain talented individuals.