Optimizing Salary Increments Based on Performance Ratings and Salary Grades

Greetings of the day!

Query: I am working in an IT company with a staff of 25 employees. As performance appraisals are conducted in our company, the next step is to increase the salaries of employees based on their ratings and salary grade. My query is this - if I rate an employee whose salary is Rs. 38,000/- per month, they receive a hike of Rs. 9,500/-; however, if I give the same rating to an employee earning Rs. 10,000 per month, the hike is only Rs. 2,500/-. I aim to normalize this so that an employee earning Rs. 10,000 per month receives a reasonable salary increase of 25% after the rating. Apart from ratings, I also want to consider the salary grade and other relevant factors.

In our company scenario: An employee in the Hardware team receives the highest rating of 25% with a salary of Rs. 23,000 per month. Conversely, an employee with a salary of Rs. 10,000 per month achieves the highest rating of 25% in the Software team. Consequently, the employee earning Rs. 10,000 experiences a minimal salary increase compared to the one earning Rs. 23,000.

Kindly provide me with a formula that can standardize the salary hike.

Hi!

Translate the percentages into fixed amounts of money that are on a decreasing pattern based on their job classes or position titles. This way, the actual increments of the higher positions with bigger salaries will always be higher than those with lower positions (even if they both get high appraisal ratings).

Best regards.

Salary increments are given either ad hoc or in percentage terms. If you use a percentage, then those with higher salaries get a greater increase. This makes sense since individuals in higher salary brackets presumably contribute more or possess more critical skill sets. So, it's a fair deal.

If you believe that a particular employee deserves a higher amount, you can always deviate from the fixed increment by seeking approval from the concerned manager and the business head. Explain why you think a specific employee should receive more. Engaging in a complex mathematical model for this purpose is not worthwhile unless, of course, you are dealing with increments for, let's say, 1000 people across locations.

I suggest never trying to equate rating and the percentage of salary. Detach performance appraisal from salary hikes.

Let's assume a scenario where all your employees are high performers and deserve a 100% or 200% hike - but is it viable to offer that? The actual factors affecting salary hikes include:

1. Cash flow
2. Management decisions regarding budget allocation for hikes, profits, etc.
3. Demand and supply of resources
4. Skill complexity, learning curve, market rates, etc.
5. Nature of the business and operational model
6. Availability of sufficient cash and funding within the company
7. HR philosophy and values
and other related factors.