It is common for organisations to operate both cost-of-living and merit-based pay reviews. The latter must be applied fairly to avoid the potential for resentment and, possibly, accusations of discrimination under equal pay legislation. Ideally, merit-based pay awards should be linked to the achievement of targeted 'outputs' agreed as part of a performance management system.

Much argument and debate has taken place about the pro's and con's of linking pay to competencies. The acquisition and development of competencies is a training and development issue. Because of this there is a strong body of opinion that believes that competency-based pay runs the risk of prejudicing the effectiveness of development activity. On this basis it is probably advisable to hold separate performance appraisal meetings, where pay is discussed, and development planning meetings.