Crafting a Fair Salary Increment Policy: How Do You Reward Extraordinary Performance?

Good morning! I am drafting a policy on annual salary increments. The policy should include a system of two salary increments. Employees who perform their duties well are entitled to one annual salary increment. However, employees who perform extraordinarily may be given two salary increments. Do you have any policies, procedures, or guidelines that may help?

Thank you!
Kmk

It is a good HR practice to develop and implement an annual salary increment policy and procedure. Usually, this is a sub-policy within the overall salary administration policy and procedures.

However, please give serious consideration to implementing a twice salary increment policy as there are other cost-effective and prudent methods of recognizing and rewarding good performance:

1. Extraordinary performance can be rewarded with a higher increment percentage. For example, average workers receive 4%, but this individual receives 10%.
2. Extraordinary performance can be rewarded with a productivity incentive. The amount is linked to goal achievement.
3. Extraordinary performance can be rewarded with a higher year-end variable bonus quantum, again tied to the achievement of agreed goals.
4. Other programs can include promotions or accelerated career progression; incentive trips, etc.

Remember, payroll cost is the single biggest cost to any organization. Salary increment is a fixed cost to the company. Once given, you can't take it back even during bad times.

And not forgetting the increased administrative hassle for both HR and Finance personnel with such a procedure.

HR's role in this situation is to seek a balance between curbing costs for the employer and rewarding well-deserving employees.

Regards,
Autumn Jane

You have not indicated the industry to which you belong, which is very important. Anyhow, following are my suggestions:

a) One increment can be for doing routine work, while the other one could be linked to the achievement in KRA.

b) You need to define KRA for every employee.

c) Also, define the range of the percentage of increment, i.e., say between 8% and 15%. Otherwise, many employees will demand a 50% hike.

d) As explained by Jane, be careful while implementing the policy. It is not easy to withdraw or modify it.

If possible, instead of giving two 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%.

Regards,
Bhavan

Dear Sirs, 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 to your basic salary whether 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 of your basic salary to be given to you in December after the appraisal cycle is over (Plus).

• 13th Month Salary - all employees who have completed a minimum of 6 months by 31st December are entitled to a 13th Salary paid with the December salary.

However, at any time during the year, all employees are entitled to 4 bonuses equal to your annual increment, which is a fixed amount tied to your basic salary to be paid for extraordinary 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 a Return on Investment (ROI) focus rather than being a government-funded organization.

Regards

As some of my colleagues have stated earlier, I would establish a previous policy stating that:

1. Salary increments and bonuses are dependent on the financial results of the company. In such a way, during tough times, you could halt increments to prevent rising fixed costs. I've seen too many enterprises go under because sales stagnate and salaries rise beyond the company's real possibilities.

2. Salary increments should be defined by performance. Using seniority as a reason for salary increments is a value-demeaning strategy.

3. Salary "adjustments" should be fixed to the country's inflation and standard of living increases. It is not an increase per se but an adjustment to ensure people maintain the same standard of living year over year.

The thing here is, what is the overall payroll strategy? Market leader, follower, more benefits than salary, etc.?

Just my two cents.

Regards,
H

Hi there, I will provide you with an example of how to process an employee increment based on performance appraisal evaluation, as outlined in the attached document. I hope the information provided is useful for you.

Regards