I can see where this statement comes from. The legitimacy of it depends on many factors, including the way the organization will bring it up to performance management, and the way employees will understand it. Some employees can see merit raises as an effective motivator, especially when payment is the biggest reason for working for that specific organization. On the other hand, some employees may not think it is fair that, in his vision, he and the X employee, the one who got a merit raise, are performing equally well and he did not get the raise. As well as some employees cannot see the merit raise having a big effect on their overall compensation