The Raymond Board of Selectmen decided unanimously at Tuesday’s meeting to adopt a merit-based pay system for office staff. The new system marks a shift from determining pay increases using a cost of living adjustment.

The new system for pay increases will go into effect in July 2017.

The proposed pay scale takes into account a number of factors, including cost of living, the employee’s performance and length of service, as well as the position’s market rate.

Under the new pay scale system, managers would be responsible for assessing their employees yearly to determine their raise. When assessing an employee, the manager would consider merit-based factors such as job performance, in addition to the employee’s working conditions and level of education, among other factors. These factors would be graded on a points scale, resulting in an overall score that determines the employee’s pay range.

Don Tyler, principal and executive vice president of Human Resource Partners based in Harpswell, and the consultant on the project, said the potential benefits of merit-based pay include “a shift in company culture” because the new pay system “recognizes individuals’ contributions.”

The merit-based pay system can be “more motivating” for employees, because they have monetary incentives for performing at their best, he said.

“Generally, merit programs foster performance,” Tyler said. “Employees like them as long as they are perceived as being fair.”

Tyler’s company was selected by the town last fall to conduct a study analyzing the pay scales of Raymond as well as other towns, and recommend a pay scale to keep and attract top-tier talent.

Mike Reynolds, chairman of the board of selectmen, was a member of the compensation committee that first started reviewing alternative pay systems a few years ago, he said.

The merit-based system will “give department heads the opportunity to reward (and) say, ‘here’s your performance review, and here’s a little extra for going above and beyond,’” Reynolds said. Department heads will have the “flexibility to award good thinking,” he said, which will provide staff with additional incentives to look for opportunities for innovation.

Selectman Samuel Gifford said he supported the merit-based pay system, saying it would give the town “an opportunity to reward people’s efforts.”

As someone who has worked at a managerial level, Gifford said rewarding efforts are important because “if the staff isn’t happy, the business won’t be good,” he said.

Gifford said despite the current pay system, the town has “a wonderful staff,” and adopting the new pay scale will “give us the satisfaction of rewarding staff based on performance.”

Tyler said he has “been in the business for many, many years,” and has worked with both large and small communities in Maine, Massachusetts and New Hampshire. There are “very few” towns with merit-based pay systems, he said.

The traditional municipal pay system is based on the employee’s time of service, with pay increases determined by the employee’s length of stay with the town.

During the upcoming year, the town will work to develop the program and train management staff to conduct performance reviews, according to Town Manager Don Willard. Money for merit-based raises will be allocated in the next fiscal budget, and department heads will be allowed to distribute the funds based on evaluations.

Gifford said the selectmen will review the financial specifics of the plan.

The board will look at “how it would impact the overall budget,” he said, “because that’s a very important thing to all of us is to preserve our workable budget.”

Under the new system, staff will not be guaranteed raises to adjust for cost of living, according to Reynolds.