How Do IT Companies in Pune Decide Salary Increments? Seeking Guidance for Our First Evaluation Process

Hi, I need to put up a proposal for salary increments to be given effective 1st April 2013. Can you please guide me through the various steps involved in deciding the salary increment for employees? I need inputs on how IT companies decide the salary increments and performance appraisal periods. Also, what is the usual rate of increment in IT companies in Pune this year?

Company Overview

Ours is a company of 80 employees, and this is the first time we will give increments to our employees by setting up a proper evaluation process. I have set up the appraisal system but now need to work on the increment strategy. Please guide.

Regards,
Gia

Factors Influencing Salary Increments in IT Companies

Salary increments in some IT companies are based on three factors:
(i) Employee Performance
(ii) Market Salary-based adjustments as per your industry segment, viz., small/mid-size/large
(iii) Loyalty factor (i.e., length of service in your company).

You may assign different weights to each factor for computation purposes and design an algorithm to compute the increments. An important issue, however, is the salary budget for the next year, which should account for both the increments for current staff and planned recruitment (if any).

It is apparent from the above that the performance appraisal of your employees should be completed before deciding on the increments. For Indian companies whose performance year is the 'Financial Year,' the appraisal process (including normalization) should be completed by 31st May. In that case, you may only be able to announce increments by the end of June. Your policy could make the increments effective from 1st July. This enables you to have three months' time for data collection pertaining to the factors discussed above and for obtaining management approvals.

Well, this could vary from company to company. I have illustrated based on global best practices.

Regards.

Thank you, Mr. Bhatia, for your valuable inputs. We do need to make salary corrections. Can you please suggest how to obtain market salary data for a small-sized IT company?

Determining Appraisal Cutoff

Additionally, we have 10% of staff who have been with the company for over a year, 80% who have been here between 6-12 months, and the remaining 10% who are less than 3 months old. Please advise on how to set a cutoff to determine who will be appraised as of March 31, 2013. Management aims to include those who have completed a minimum of 6 months. Our organization is small, so the dynamics are a bit different from mid-sized or large organizations.

Looking forward to your inputs.

Regards,
Gia

My answers specific to your queries are as follows:

Market-Based Salary Adjustments

(i) No need to worry about market-based salary adjustments and the loyalty factor since your company is too young at present.

Performance-Based Increments

(ii) You need to focus only on performance-based increments. I hope you have a system in place.

Increment Distribution Strategy

(iii) Your best performers may be given 15-20%, the next lot 10-15%, the next tier 7-10%, and no increment to those rated very low (3 or below on a scale of 0 to 9) in their performance evaluation. If those not given an increment decide to quit, you save the company the pain of carrying the non-performers.

Appraisal Policy for New Employees

Your management seems justified in having no appraisal for those who do not complete 6 months as of March 31, 2013 (but are confirmed employees in the company). Please note that the 6-month period counts from the date of confirmation. For those still on probation, no annual appraisal is applicable. Probably you do have a separate process to decide who all deserve to be confirmed. This confirmation process for probationers is most important in IT companies since low performers can be shown the door or have their probationary period extended.

You can follow the steps below:

1. Set a cutoff date for appraisals (for example, December 31, 2012).
2. Collect employee ratings from Operations Managers.
3. Review your overall budget.
4. Based on the budget, set percentage increases for all ratings.
5. Calculate the increment amount based on the employee's tenure. For employees with one year of service, provide a full percentage increase; for other employees, prorate the increase according to their tenure.

Regards,

Thank you, Mr. Bhatia and Naveen. Naveen: Can you tell me if I keep the cut-off as on 31st Dec, should I make it applicable for those who have completed 6 months as of 31st Dec and would have completed 9 months by 31st Mar, OR should I set the cut-off as 31st Mar so that employees who complete 6 months in Jan/Feb/Mar also get covered?

Increment Calculation

Also, in point no. 5... for example, if I define a 10% increment on basic, then a person who completed 1 year will get 10%. For the one who completed 8 months, how do I calculate on a pro-rata basis? I understand this is basic stuff for a C&B specialist, but as I am handling C&B for the first time, hence my queries are on the basics as well. Please do share your inputs.

Regards,
Gia

Can anyone suggest how to do industry benchmarking for salary hikes in the IT industry? Also, apart from this, can anyone let me know how to get information regarding which companies are using a 360 appraisal system and processes for evaluation from scratch till the end? Please, it's highly required. Any help can do a lot for me.

Regards,
Kunal

Sorry for the late reply. The cut-off date should be taken as 31st December only; employees who join after that date will be eligible for appraisal next year. For the second query, you can divide the number of years by 12 as you are considering it for 12 months.

Salary Increment Details

Salary | Increment | Years | Increment Value
100,000 | 10% | 12 | 10,000
100,000 | 10% | 8 | 6,667

Regards,
Naveen