This is an excellent question.  By literary standards, I'm going to assume you mean the standards used to decide if literature is great or not...for instance, Shakespeare versus Danielle Steele.  Nothing against Danielle Steele, but I'm going to go out on a limb and risk saying that her work will not be read three hundred years from now, but Shakespeare's still will be.

Why?  Well, literary merit, for one reason.  Works that are considered of "literary merit" are works that stand the test of time.  They are the best works of literary art that a culture has to offer.  They are worth praising because they are works of quality which have aesthetic value (beauty beyond themselves which enlivens and awakens the senses).  Usually, literary merit includes work of good taste--pornography, lewdness, and profane language more often than not, takes away from this.  Hence, much of what's on the top 10 list at the bookstore will not be included in literary merit because our society has become such a lewd, profane, and riddled with pornography entity.

By "standing the test of time" I mean that the themes are universal.  The themes and the characters, and perhaps other elements (setting, maybe) of the book should be able to attract and be easily relatable to people from every walk of life and from every nation.  Themes which are innately human (like the ones you find in Shakespeare) such as greed, ambition, fascination with the supernatural, love, envy, honor, jealousy, family relationships, etc. transcend time, space, and culture.

In addition, the words chosen and the way they are put together make it a musical read.  The language is beautiful.  (The Poisonwood Bible and Paradise Lost both immediately come to mind as beautifully written works of literature).  The vocabulary is somewhat challenging, the ideas presented cause debate, the subject matter makes you put yourself into that character's position to decide what you would do in a similar predicament.  It provides for great discussions in and out of the classroom.

I hope this helps!  Check out the links below for additional discussion on literary merit and how to tell if a work has it.  Good Luck!