How Would Delaying Salary Increments After Appraisals Affect Employee Morale?

We are a mid-sized light engineering company engaging about 250 employees. We intend to separate the appraisal process from annual increments. What would be the impact if we conduct appraisals in a particular month and disburse increments after 3 months?

First and foremost, when you ask a query, business etiquette demands disclosure of your name and designation. Secondly, the category of your post is also inappropriate. You should have raised this query in the "Performance Appraisal Management" category and not in "CiteHR Website Support".

Linking Appraisal and Salary Increment

If you de-link appraisal and salary increment, then what would be the basis of salary increment? Secondly, you have written that you wanted to disburse increments after 3 months. Therefore, anyway you are linking PA and salary increments, albeit belatedly.

Request for Complete PA Process

If possible, please provide your complete PA process here. Any suggestions can be given then only.

Regards,
Dinesh V Divekar

Normally, an appraisal takes about a month with the current size of staff. Unnecessary dragging of the increment rights will only agitate and demotivate the staff. Your concern here seems to be immediate attrition post appraisals and increment; correct me if I am wrong.

Quarterly Increment Strategy

What you can otherwise do is create a policy and decide on a lump sum amount as an increment to be dispersed on a quarterly basis. For example, if you give an increment of 1 lakh per annum, you can disburse the same 25k in each quarter.

Increment and Retention Bonus

Also, you can divide the whole increment into a certain percentage hike in salary and the rest as a lump sum retention bonus to be given after a certain period. Many IT companies follow this trend.

Regards

Yes, Performance Appraisal is normally used as a tool to award/reward increments, promotions, etc. However, the performance appraisal system is a system that needs to be looked at scientifically. Actually, this system helps an organization approach managing the performance of individuals holistically. By this, apart from deciding increments, there is an opportunity for the employer to understand how good the individual is in his current position, potential to shoulder or manage higher responsibilities, career planning, succession planning, etc.

However, many organizations do not take this exercise seriously, and only during the annual review, this is done hastily and handed over to the HRD department. By this approach, the whole purpose is defeated.

Increments are not mandatory. There is no legal binding on an organization that they must extend an increment to the employees. An organization hires someone to perform certain functions for which it fixes up a mutually agreed remuneration. As long as he does this to the satisfaction of the organization, the organization is bound to pay him the agreed remuneration. However, there may be chances that the employee does not perform well in the given portfolio (as intended), then the company can look at this differently.

Therefore, paying an increment comes only when you excel well in your performance, contribute more to the organization, and demonstrate a high degree of potential to take on more and higher responsibilities. So, considering someone in that position and paying a higher salary is more relevant in this case. And it is in this context that the Performance Management System has come into play to assess his suitability.

Otherwise, there is nothing that would hold you back from delinking your increment system from the Performance Appraisal review.

Regards,
Balaji