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It definitely makes sense to give workers merit raises so long as the system for deciding who deserves a raise is fair.
Giving workers merit raises is a really good idea for at least two reasons. First, employees who do better work are worth more to a firm. Ideally, a firm pays its workers based on the value that they add to the firm. A worker who is more productive adds more value to the firm. It therefore is only fair to pay that worker more than a person who does not add as much value. Second, by having merit pay, a firm can encourage its workers to do a better job. Many workers could be motivated, at least in part, by the extra money and by the prestige of getting a raise. This would then tend to increase productivity, which is a goal for any firm.
The only real downside to giving merit pay is that it can demoralize workers who do not get it. They might come to resent their colleagues who do get merit pay and they might come to resent the people who decide who gets the merit pay. For this reason, it is very important to have an objective way to determine who deserves a raise. This will help to mitigate the resentment that would come with merit raises.
Overall, then, I would argue that merit raises are a good thing so long as they are implemented properly.
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