I am drafting a policy on annual salary increment. The policy should include the system of two salay increments. Employees who perform their duty well are entitled for one annual salary increment. However employees those perform extraorinarily may be given two salary increments. Do you have policy/procedures or guidelines that may help?
It is a good HR practice to develop and implement an annual salary increment policy & procedure. Usually this is a sub-policy within the overall salary administration policy & procedures.
However, please give serious consideration in implementing a twice salary increment policy as there are other cost-effective & prudent methods of recognizing & rewarding good performance:
1. Extra-ordinary performance can be rewarded with a higher increment % e.g. average workers receive 4% but this individual receives 10%.
2. Extra-ordinary performance can be rewarded with a productivity incentive. Amount is linked to goals achievement.
3. Extra-ordinary performance can be rewarded with a higher year-end variable bonus quantum again tied to achievement of agreed goals.
4. Other programs can include promotions or accelerate career progression; incentive trips, etc.
Remember, payroll cost is the single biggest cost to any organizations. Salary increment is fixed cost to the company. Once given, you can't take it back even when during bad times.
And not forgetting the increased administrative hassle for both HR & Finance personnel to such a procedure.
HR's role in this situation is to seek a balance between curbing cost for the employer and rewarding well-deserved employees.
You have not indicated the industry to which you belong. It is very important. Anyhow, following are my suggestions.
a) One increment can be for doing routine work. Other one could be linked to the achievement in KRA.
b) You need to define KRA for every employee.
c) Also define what is the range of percentage of increment i.,e say between 8% and 15%. Otherwise, many employees will demand 50% hike.
d) As explained by Jane, be careful while implementing the policy. It is not easy to withdraw it or modify it.
If possible, Instead of giving 2 increments, give only one increment linked to performance in KRA. This is more practical. You can fix the range from 8% to 25% so that the extraordinary performer will get 25% while the below average performer will get 8%.
Here is another angle you can look at I worked for an organization that provided the following
•A fixed amount tied to your grade to be added into your basic salary weather you perform or not to be added as of 31st January of the following year (Plus)
•Performance Based Increment i.e. your rating is from 1 to 5 and is tied to a percentage against your basic salary to be give to you in December after the appraisal cycle is over (Plus)
•13th Month Salary- all employees who have completed minimum 6 months by 31st December is titled to a 13th Salary paid with December salary.
However anytime during the year all employees are entitled to 4 bonus equal to your annual increment which is a fixed amount tied to your basic salary to be paid for extra ordinary performance.
There are a lot of options you can choose from to pay employees increments and bonuses. You can have better options for employees if you have (ROI) not a governmental funded organization go hey way.
1- Salary increments and bonuses are dependent on financial results from the company. In such way in bad weather you could halt increments of rising fixed costs. I've seen too many enterprises go under because sales stagnate and salaries rise above real possibilities for the company.
2- Salary increments should be defined by performance. Seniority as a salary increment reason is a value demeaning strategy.
3- Salary "adjustments" fixed to the country's inflation and standard of living increase. It is not an increase per se, but an adjustment so the people can have the same standard of living year over year.
The thing here is, which is the overall payroll strategy? Market leader, follower, more benefits than salary, etc?
Just my two-cents.
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