What is the least amount of money that, I can pay and maximum amount of work that, I can extract, if that is the thought process of a business owner then, that business owner is bound to fail. Because, your team members come with the thought process of what’s the least amount of work that, I can do and maximum amount of money that, I can demand?

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Now this is where a big question arises for a lot of business owners and the question is “how do we pay people fairly and transparently” so that they are happy and they are driven to contribute to the workplace.

That’s why in this article, we are going to break down for you some core principles and practices when it comes to doing Fair salary appraisal for your team members.

Salary Appraisal

When it comes to doing salary appraisals, the worst thing that you can do is pay people and increment based on your personal relationship with them this is an appraisal of bias.

Just because someone’s nice to you sweet to you and you like them you give them a higher increment just because somebody is not listening to you and you don’t share a good and deep socialization with them doesn’t mean that you pay them a lesser increment.

The key is this, salary appraisal need to be done based on Performance, Based on capability and Based on data and for that you need to understand some core principles and practices. So The,

First Question, People Often Ask

“How often or how frequently should we appraise people’s salaries?”

• Well the option is yours, if you want a more staggered increment to be given to your team members then you can do it once in 6 months (semiannually) where you revise people’s salaries. Once a year minimum and once a year is a good standard so when it comes to frequency it can be annually or semiannually.

Second Question, Business Owners Often Ask

“Should we increase the salary for everybody at the start of the financial year itself?”

• Our practical understanding of cash flows of businesses, what we found most healthy to do is “you don’t make a standard period for salary appraisal”, do the salary appraisals based on the month of joining of the team member, so if someone joined in March, every year in March you do their appraisal, someone joined in May every year, you do their appraisal accordingly based on the May cycle for them.
• The advantage of this types of salary appraisals is that, while you’re increasing people’s salary based on their joining dates or joining months you are staggering the requirement of your business when it comes to cash flows.
• Otherwise what happens is, let’s just say if you are doing salary appraisal at the April of the financial year for all your team members then suddenly there a bump in expenses every year from the month of April and it creates a kind of a stress on your cash flows.
• So make the salary appraisal cycle, based on the joining month of an employee because it serves the purpose of cash flow management for a business.

Third Question, Most People/Business Owners Often Ask

“How do I make sure that the salary appraisal is fair to the company and individual? And how do we create transparency so there is no conflicts when it comes to salary appraisals and expectations of people?

For that there are certain practices that you as a business owner or a management team need to undertake at the beginning of the appraisal cycle of an individual.

For example: – We have a team member on our team whose name is Jack, now Jack joined us in the year 2024 in the month of July, which means July is a salary appraisal period, now what we need to do for Jack is for the coming year if we are looking at the financial year 2025, 2026 then for the coming year before July we need to sit with Jack and let him know,

• What are the goals he needs to achieve in his role?
• What are the skills and knowledge areas which he needs to show Improvement in and show growth in?
• What are the attitude attributes he needs to work on so that he fits into the culture of the organization?

now when we Define this for Jack at the start of the appraisal cycle, he knows exactly what he will be measured on for the next one year, that creates great clarity and transparency for Jack and he can’t come back and point a finger at us saying you didn’t tell me what is expected out of me now you’re telling me, I’ve not met your expectations.

So we put out our expectations for Jack at the beginning of the year itself. Now while we define these goals we also need to Define for Jack,

• What are the wages to be given to each one of these goals?
• What percentage of his appraisal budget will be allocate to his result achievement?
• What percentage of his appraisal budget will be allocate to his skill and knowledge growth?
• What percentage of his appraisal budget will we allocated to his attitude fitment?

Because we can’t divide the appraisal budget into 33.33%, 33.33%, 33.33% for an individual As Total of 100%, that would be unfair. Obviously for us the higher priority is the results Jack achieves in his goals, so probably we may attribute, say about

• First Priority -Results Goals-75%
• Second Priority-Skill And Knowledge Development-15%
• Third Priority-Attitude Fitment-10%

This prioritization and weightage has to be clear to Jack so he knows exactly what is most important for him, because it shouldn’t be that at the end of the year Jack is just a good team player who is not throwing any, negative behaviors on other team members, he’s very respectful, empathetic and because of that one reason, he’s expecting that he gets a great appraisal.

The weightage has to be clear to him saying, look here’s the weightage for results, here’s the weightage for skill and knowledge and here’s the weightage for attitude. So that is very important for us to Define at the beginning of the year.

Monthly Engagement

Once we have created goals for Jack we don’t abandon him for the next one year,

• As his manager, then we need to make sure on a monthly basis we are doing reviews with Jack and we are giving him feedback on his results on his skill and knowledge and on his attitude with evidences of instances, where he’s done well, where he’s not done well and where he needs to show a change and we need to give him the solution, we need to provide the mentoring to him of how to change and how to achieve those results or how to develop those skills and knowledge. So that is a monthly engagement we need to have with my team members,
• Now if you already have a very large team then you need to do this as a business owner with your managers and your managers need to do this with their respective individual team members.

The key is this everyone needs to be reviewed on a monthly basis, everyone needs to be given feedback at useful 3 parameters as,

• What was done well?
• What was not done well?
• What can be done differently?

That’s where you are fulfilling your responsibility as leaders and enabling and empowering people to become better version of themselves so that they can achieve their goals.

Once you do that there are two more steps for you to have a very fair and transparent appraisal system.

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Calculate Your Budget For Appraisal

you need to focus on to do an appraisal in a transparent and a fair manner is while you’ve created Clarity of goals and the weightage at the beginning of the year and you’re doing reviews and feedback consistently on a month-to-month basis just before the end of the cycle of the appraisal.

To calculate the budget well For Appraisal, You take into consideration the financial realities of your business

• What has been the performance of your business over the last one year?
• What is the current cash flow status looking like?
• What is the future Prospect and the potential of the business looking like?

Now if all is well you can give an optimistic appraisal percentage. If things are not that great not that bad then you give a moderate appraisal percentage and if things are looking very grim and dark then you give a very conservative appraisal percentage. So you decide on a percentage of appraisal and based on that percentage of appraisal you come up with the budget or the overall number you are willing to stretch to for that individual.

For example: – Jack’s salary is $ 25,000 and say we decide to give a 20% appraisal this year because the year looks great So 20% would be $ 5,000 now should we give Jack that entire $5,000, no based on the results, based on the skill and knowledge growth and based on the attitude fitment and based on the weightages to each one of these 3 we will divide that $5,000.

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Calculating The Appraisal

• We will calculate the appraisal based on those 3 parameters that we created Clarity of and the weightage we drew out at the beginning of the year and we will know exactly how much money Jack deserves.
• We will sit down and do this calculation along with Jack because everything is transparent, his goals were transparent at the beginning of the year the feedback and review have made sure what are the expectations where he’s aligning where he’s falling short so everything is transparent together we and Jack can sit and do the calculation.
• Showcase, Jack saying hey this is what you’ve deserved, this is what you’ve earned for yourself, this is a very fair and a transparent mechanism of doing appraisals.

If this article is useful for you then we recommend to revisit our website to read other useful information for your success as well as to manage your personal life.