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Human Resources/regarding merit increments


Hi there,

I am preparing an increment and promotion policy for our organisation.

The performance rating scale that we follow is 1-5. Based on the performance rating am assigning certain % to these rating scales so that managers propose the increment based on the rating and the % scale. employees getting high rating will be inline for promotion. but since we are a small organisation cannot have to many promotions.

Please let me know if there is anything that I need to take care of. Also request you to share the increment and promotion policies followed in some of the organisations

Thank you

Hi Nidhi
The rating scale is a tool to assess the level of performance. What is the performance assessed on (is it key deliverables for the year or potential elements too) will determine the final rating.

In determining increments & promotion you need to be clear about the philosophy that you want to follow. There are two elements that are critical - performance & potential. Very often organizations confuse one with the other. In the bargain, just because a person is performing well, the person may be considered for promotion even though the person may not have the capability or competence to do the higher order role. So, being clear about the qualities/ competencies/ capabilities required for different responsibility levels is critical. Then individuals can be assessed against those for decisions on promotion.

The other aspect is that if promotion only means a change in designation with no real change in responsibility, then the downside can be that you create a plethora of designations. However, over a period of time people will see through and feel restless.

In any organization, there will be a limit to the number of promotions that you can give. Very often promotion is confused as the only way to develop people. That is where the concern of limited promotions comes in. Having clarity on ways to develop people through multiple assignments, cross-functional exposure etc. can be a good way to keep them engaged and developing them.

In many organizations, the annual performance (which is very objective) impacts the performance pay/ reward & may be the fixed increment marginally. The other part of the fixed increment is driven by the market reality (what that roles gets in the market), the level of competitiveness that that the organization wants to have & the potential of the individual. Sometimes market may pay higher for a role in the same grade or responsibility level. That needs to be factored in if the organization wants to be competitive for that role. Also, different individuals bring different value to a role. Those who bring higher value in a similar role are likely to be valued more by the market. That will need to be factored in. The metaphor that these organizations choose is that of recruiting the person every year into that role. These organizations follow the market led, individual worth & capacity to pay principle. There are others who choose to have a philosophy of paying equal for all in a given grade/ responsibility level. Each approach has its own consequence.

As far as promotions are concerned, many organizations have clarity about the competence required at each level & then assess suitability of individuals for the same. They also invest in developing people to become suitable.

These are various factors & approaches that you could consider. Hope this helps you think through more about what you could do. Do revert if you have clarifications or further queries based on the response. I will be happy to respond. All the best.

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Pankaj Bhargava


Questions related to choice of career, inter-personal issues at the workplace, performance management issues, structure issues, compensation structuring issues, culture building issues, linking HR with org. strategy


22 years in HR and Org. Development, designing & facilitating interventions, leading an HR team of an Indian multinational & facilitating multiple organizations across industries to build the desired culture to serve business need

HR magazine of TISS (an HR institute of repute - Tata Institute of Social Sciences)

B. Tech (Chemical Engineering) from IIT Mumbai (one of the most reputed engineering school in India) and PGDM (MBA) from IIM Kolkata (one of the most reputed management institutes in India).

Awards and Honors
Was awarded the Gold Medal for excellence in HR by the Bengal Chamber of Commerce at IIM

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