Simply put, your question is whether the employee under notice period has a legal stake in the general hike in salary offered to other employees. It depends on many factors. Moreover, there is no mention in your post whether the notice period undergone for the timebeing is on account of his prospective resignation or termination at the instance of the employer.
Since admittedly the outgoing employee has got a good track record, no harm in exercising the option of granting him also the hike in spite of his exit, if it is of retrospective effect. In that case, I think he has got the right to claim the hike on par with others. If it is resignation, the hike may change his decison to quit and he may withdraw his resignation before the expiry of the notice period. So, the quantum of the hike and the date of its implementation are crucial factors in such a situation.
Even at times, extraordinary hike with prospective effect can also play a vital role in the reversal of the decison of resignation effective from a future date.
Whether to give annual increment to an employee who is under notice period is discretion of the management. It has become discretion based decision because this situation was not anticipated and in the Policy on Compensation and Benefits or Policy on Performance Management System (PMS) eligibility criteria for annual increment was not included.
As of now take this as one-off decision however, amend your policy first. As long as you pay anything above minimum, annual hikes are beyond the scope of labour laws hence no comments can be offered.
Let me move out and see other options. If he likes your company, he will certainly join you back or withdraw his resignation.
Thank you for the information .
As you discussed we simply will not accept the decision of the employee..We asked him in the exit interview he replied for a better prospect .
Moreover we did not acknowledge his resignation email for 3 days because we want to retain the employee as he has got a good track record . after discussing all these things itself we made a decision and acknowledged his resignation.
We cannot force an employee to tell one more reason and it is his wish to address the issue and he has the responsibility to tell that .
We asked him multiple times but he is sticking with one answer i.e better prospective
Now you tell me if there is a suggestion . Iam happy to listen to ..