No Tags Found!


Hi, I am doing performance appraisal of employees but management wants me to set a yearly budget for performance appraisal, can anyone help me to understand what factors should I consider and and how can I decide yearly performance appraisal budget for the company?
From India, Delhi
Dinesh Divekar

Dear Saroj,

The measurement of the performance is an in-house activity. Secondly, the action is based on the performance records and does not require using tools, instruments, raw materials etc. Therefore, other than allocation of the time for the performance appraisal (PA), the activity does not incur expenses. If the activity is free from expenses, then where is the question of allocation of budget?

Possibly, you have used the term PA for a salary hike or salary increment that happens based on the score of the PA. If yes, then this is the usual mistake the HR professionals make. An annual salary increment is not a substitute for the PA.

Even for the decision on the percentage of the salary increment, HR has a limited role. This is because the hike is given based on the financial performance of the company. It is the job of the top leadership and it cannot be delegated.


Dinesh Divekar

From India, Bangalore

Hi Saroj,

Setting a yearly budget for performance appraisals involves considering various factors to ensure fairness, motivation, and alignment with organizational goals. Here are steps and factors to consider:

Understand Organizational Goals and Budget Constraints:

Start by understanding the company's overall goals and budget constraints. This will provide a framework for setting the budget for performance appraisals.
Allocate Proportionally:

Consider allocating a percentage of the overall salary budget for performance appraisals. The percentage may vary depending on industry norms, company size, and financial health.
Performance Metrics and Criteria:
Define clear and objective performance metrics and criteria that will be used to evaluate employees. These metrics should be aligned with the company's goals and objectives.
Differentiate Performance Levels:

Allocate more budget for high-performing employees who have demonstrated exceptional contributions to the company's success.
Consider Market Salaries:

Benchmark salaries against industry standards and local job markets. Ensure that the appraisal budget is competitive enough to retain top talent.
Tenure and Experience:
Consider employee tenure and experience when allocating appraisal budgets. Long-serving, experienced employees may warrant higher increases.

Budget for Merit Increases:
Allocate a portion of the budget for merit-based salary increases. This rewards employees based on their performance and contributions.

Cost of Living Adjustments (COLA):

Consider any necessary cost of living adjustments to ensure that salaries remain competitive in the local job market.

Skill Development and Training:
Allocate budget for skill development and training programs. Investing in employee development can improve performance and contribute to long-term success.

Consider Benefits and Perks:
Don't forget to account for non-salary benefits and perks that contribute to overall compensation packages.
Budget for Promotions and Career Progression:

Set aside budget for promotions or career advancement. This can be a significant motivating factor for employees.

Variable Pay or Bonuses:
Allocate budget for variable pay, such as performance-based bonuses or incentives, for exceptional achievements.

Account for Inflation:
Consider inflation rates when setting the budget to ensure that salaries remain competitive in real terms.
Feedback and Evaluation Process:

Ensure that the performance appraisal process is transparent, fair, and includes feedback from multiple sources.

Flexibility for Special Cases:
Have a provision for special cases like exceptional performance, critical skill sets, or retention needs that may require additional budget allocation.

Regular Review and Adjustments:
Periodically review and adjust the appraisal budget based on business performance, market conditions, and any significant changes in the company's financial situation.

Remember, it's crucial to communicate the rationale behind the budget allocation to employees and managers to foster trust and transparency. Additionally, seek feedback from various stakeholders to refine the budgeting process in the future.

From India, Bangalore

Thank you very much for this insightful suggestion and view about the topic.
From India, Delhi
Srinath Sai Ram

Dear Mr Saroj,
Can you Please elaborate your Statement "I am doing performance appraisal of employees" assessing performance of Employees is normally done by their Reporting Managers. If you want to know about Performance appraisal System , Pl go through various documents available in this forum.You have to improve your Competency before assessing other Employees.

From India, New Delhi
Hello, as we are into implementing Appraisal System in our company, before that
1. I wanted to understand how and what all methods are used in different sizes of the companies, like in startups, SMEs, Corporates and MNCs.
2. If anyone have formats for the Appraisal System and can provide a sample.

From India, Ahmedabad

Hi Sanika,
Please find herein enclosed the appraisal format it will be useful for you. also, you can find my postings on appraisal front such as Skill Matrix, KRAs & KPIs and appraisal forms & Organization chart in this cite, you can download and make required changes as per your company specifications.

From India, Bangalore
Attached Files (Download Requires Membership)
File Type: docx Performance Appraisal Format.docx (69.5 KB, 33 views)

Logistics park
I am looking for an appraisal process and format for 3PL service providers, including KRAs and KPIs.
From India, Mumbai
Community Support and Knowledge-base on business, career and organisational prospects and issues - Register and Log In to CiteHR and post your query, download formats and be part of a fostered community of professionals.

Contact Us Privacy Policy Disclaimer Terms Of Service

All rights reserved @ 2024 CiteHR

All Copyright And Trademarks in Posts Held By Respective Owners.