Salary Increment

What is a Salary Increment?

A salary increment is an increase in an employee’s current annual salary in the form of a figure or a percentage. It is typically calculated quarterly, half-yearly, or yearly. Salary increments depend on performance appraisals, duration of service, shortage of talent, the company’s budget, and the industry’s economic situation. When an employee receives a salary increment, his base salary is increased, which can be used as a negotiation point with a prospective employer. Salary increments help show appreciation to employees and maintain positive retention rates.

In India, the average yearly salary increments in the private sector in 2023 is 9.2%, lower than the average of 9.4% in 2022. In the public sector, DA (Dearness Allowance) is revised twice a year. In 2023, DA increased by 4%. Salary increments in the public sector are generally around 3 to 4%.

For example, if an employee earning ₹5,00,000 a year received a 3% increment in salary, the total increment would be ₹15,000, amounting to a base salary of ₹5,15,000. Employers may choose to pay this amount at once or monthly.

How to calculate Salary Increment Percentage (Right Way)

To calculate the Salary (Pay) Increment Percentage, understanding the components which are used to calculate it, is required:

1. Gross Salary: Gross salary is the total earnings of an employee, including commissions, tips, incentives, dividends, interest, etc.

2. Net Salary: Net salary is the leftover income after subtracting any deductions from gross salary.

3. Take-Home Salary: Take-home salary is the same as net salary.

Calculation of Salary Increment

To calculate salary increment, calculate the difference between the current and new salary. For example, if the current salary is Rs.5,00,000 and the new salary is 5,15,000 the salary increment would be Rs.15,000.

This figure can be calculated in the form of a percentage by dividing the difference amount Rs.15,000 by 5,00,000 (current salary) and multiplying by 100. In this case, the salary increment percentage is 3%

Calculation of Salary Increment Percentage

To calculate a salary increment percentage, calculate the difference between the current and new salary. Divide the amount calculated by the current salary and multiply by 100.

What are the factors that determine salary increment?

Salary increments are generally increased in figures or percentages. There are several factors that determine salary increments:

• Performance evaluations and appraisals
• Industry and company’s financial condition
• Seniority level of an employee
• Taking on additional responsibilities and developing new skills
• Contribution to the company’s success
• Maintaining positive feedback and recognition
• Market value of the position, skills, and experience

How to negotiate a salary increment with an employee?

Employers must take active steps to ensure that deserving employees are rewarded in a timely manner. Employees have good expectations of receiving an increment from their employer and being recognized for their work. Organizations that do not meet these expectations are at risk of losing their good employees. The process to negotiate a salary increment with an employee is:

• Do not wait for employees to request a salary increment
• Identify them before they reach out
• Schedule 1:1 meeting to discuss the salary increment
• Have an open conversation with the employee
• Help employees understand the reason behind the increment’s approval or disapproval.
• Reach a conclusion that is fair to both the employee and the employer
• Communicate the next step

Employees who feel like the organization is not meeting their expectations become dissatisfied and are more likely to leave the company. Managers must not wait for employees to reach out first and should identify them by fostering a culture of open feedback, using the performance reviews data, measuring the company’s eNPS, and conducting surveys. In one-on-one discussions, listen to what they have to say and understand where they add value to the company’s success. After the discussion, make sure that employees leave on a positive note with a clear mind about what to do next.

Frequently Asked Question (FAQs)

Q1. What is an increment in salary?

An increment in salary means an increase in an employee’s current salary in the form of a percentage or a figure.

Q2. How often are salary increments typically given?

Salary increments are given quarterly, half-yearly, or yearly, depending on performance appraisals, market value, and the company’s financial condition.

Q3. Can an employee request a salary increment outside of the regular increment cycle?

Yes, an employee can request a salary increment outside the regular increment cycle if he has served the company for a longer period, has exceptional performance ratings, or if economic conditions changed.

Q4. What is the communication process for notifying employees about their salary increments?

• Schedule a 1:1 meeting with the employee
• Explain the reason and context for the salary increment
• Highlight the factors that contributed to the salary increment
• Avoid explaining why the increment isn’t higher, unless asked
• Appreciate the employee for his contributions
• Encourage open discussion
• Provide all relevant documentation

Q5. How does performance evaluation impact salary increments?

Salary increments are impacted by an employee’s performance appraisal based on KPIs, KRAs, and ratings, which are evaluated yearly. However, a performance appraisal will not always result in a salary increment.