How Should HR Respond When Management Limits Annual Increments for Top Performers?

My management does not want to provide an annual increment every year. However, if there is a good performer, what will be the reply for them as an HR Executive?

Again, if an annual increment is permitted for any year, management does not want to provide an increment to all employees. They do not want to adjust inflationary adjustment. What will be the HR response?

Distinguishing Annual Increment from Inflationary Adjustment

I think we need to clearly distinguish annual increment from inflationary adjustment of salary. The inflation adjustment is done through DA and is generally revised two to four times a year depending on the change in the base Consumer Price Index. An increment is a reward given annually for satisfactory service during the previous appraisal period.

Increment in Government vs. Private Sector

Whereas in a governmental setup, 'Increment is a predefined uniform quantum for each salary grade, drawn as a matter of course and is withheld on specific orders/spelt out reasons.' In the private sector, an increment is variable and is not granted to all. For those denied the annual increment, HR has to be ready with a reply explaining the unsatisfactory nature of performance and the company expectations from the employee concerned.

In addition to what KKHR said, annual increments are linked to performance. The quantum of it or the denial of it needs to be based on an objective evaluation of the employee's performance by the reporting authority or the appraisal committee. This is often followed by a discussion between the employee and their supervisor or the Appraisal Committee. It should not be subject to subjective considerations or the whims and fancies of the management.

For this, you need to have a proper Performance Management System (PMS) in place.

B. Saikumar
HR & Labour Relations Advisor
Navi Mumbai

Dear Friend,

There is nothing wrong if your workforce agrees to work without a yearly increment. Furthermore, if your management is capable of managing the show without providing annual increments, it is an addition to profit. Rewarding, promoting, or giving increments to good or talented people does not fall under the category of annual increment. The annual increment is given to workmen to compensate substantially for the cost of living influenced by the hike in the price index.

There is a difference between compensating for the inflationary effect and compensating for the contributions made by an employee to the value of the business and productivity of the company. The inflationary effect is taken care of by the Dearness Allowance formula based on CPI points once in a quarter/half-year, depending on the industrial practice sector-wise. Annual increments, rewards, or incentives, by whatever name you call them, are not linked to CPI but to the performance of an employee for a year, though the assessment period may vary.

Regards, B. Saikumar HR & Labour Relations Advisor Navi Mumbai

Hi,

This is Somnath Prasad. I just added my query to know about what's the basic methodology of increment based on a time frame work. Can we analyze it in a format?

Set KPIs at the beginning of the year and communicate them to staff. Analyze performance at the end of the year, and based on the results, provide increments within the allocated budget.