(a) The commissioner shall prepare and recommend to the governor a compensation plan for all employees. Such compensation plan shall include, for each class of positions, a minimum and maximum rate, and such intermediate rates as the commissioner considers necessary or equitable. In establishing such rates, the commissioner shall consider the ability to effectively recruit for positions in state service, the prevailing rates of pay for the services performed and for comparable services in public and private employment, living costs, other benefits received by employees, and the state's financial condition and policies. The compensation plan shall take effect when approved by the governor. The commissioner may initiate and recommend amendments, from time to time, to the governor. Each employee shall be paid at one (1) of the rates set forth in the compensation plan for the class of positions, in which the employee is employed. The commissioner may approve payment at a rate above that assigned to the employee's position in the compensation plan when the commissioner determines it to be in the interest of the state. Nothing in this chapter shall be construed to affect salary surveys and compensation schedules conducted and implemented pursuant to statute, including, but not limited to title 4, chapter 7, part 2.

(b) Notwithstanding any law to the contrary, the commissioner shall establish guidelines to govern the distribution of any funds which may be available for merit pay for members of the state service.

(1) The guidelines shall establish objectively measurable criteria, which ensure that the merit pay system:

(A) Rewards above-average performance;

(B) Improves efficiency;

(C) Encourages participation in programs that will improve job performance and skills; and

(D) Does not permit, facilitate or promote discrimination on account of race, color, national origin, gender, age, disability, religion or creed, veteran's status or political opinions or affiliations.

(2) Such guidelines shall also provide that merit pay funds are consistently distributed in a fair and equitable manner.

(3) All employees shall be eligible for merit pay pursuant to rules promulgated by the department.

(c) Each employee whose job conduct and performance are satisfactory shall receive a periodic salary increase, if and when, authorized by the legislature; provided, that employees at or above the top step of their salary ranges shall not be eligible for such a salary increase. Periodic salary increases shall only be awarded to employees who have completed twelve (12) continuous months of state service as of July 1 each year. Employees who have not completed twelve (12) continuous months of state service as of July 1 each year shall be eligible for a periodic salary increase upon completion of twelve (12) continuous months of state service. Periodic salary increases shall be subject to availability of funds as provided in the general appropriations act for each fiscal year.