Key takeaways
- Run appraisals as a 12-month cycle, not a March event: goals in April, check-ins every quarter, a mid-year review, then the final review.
- Use a 5-point scale with plain definitions, and require a written example for any very high or very low rating.
- Calibrate ratings across teams before you announce them; a forced bell curve is optional, not required.
- If increments are effective from 1 April but approved later, pay the difference as arrears and check the 50% wage rule on the new structure.
A performance appraisal is the formal review of how well an employee met the goals agreed for a period, usually a year. Done well, it tells people where they stand, decides increments and promotions fairly, and gives you a record if you ever need to act on poor performance. Done badly, it is a form filled in at the last minute that everyone resents.
Most Indian companies follow the financial year, so the cycle below runs from April to March. If your year is the calendar year, shift every month by three.
The appraisal calendar at a glance
| When | Step | Who |
|---|
| April | Set goals (KRAs, KPIs and weightage) for the new year | Manager + employee |
| July, October, January | Quarterly check-ins: progress, blockers, goal changes | Manager + employee |
| October | Mid-year review with a provisional rating | Manager |
| February | Self-appraisal and manager review | Employee, then manager |
| March | Calibration and normalisation across teams | HR + department heads |
| April | Ratings, increment and promotion letters | HR + management |
| April–June payroll | New salary live; arrears paid if letters are late | Payroll |
The 7 steps
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1. Set goals that can be measuredAgree 4 to 6 key result areas (KRAs) per person, each with a KPI, a target and a weightage that adds up to 100%. Vague goals such as “improve customer service” cannot be rated fairly at year-end. See our KRA and KPI examples for 12 roles.
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2. Check in every quarterA 20-minute conversation each quarter catches problems early and lets you change goals when the business changes. Record a line or two in the HR system so the year-end review is not based on memory.
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3. Hold a mid-year reviewGive a provisional rating in October. Nobody should be surprised by their final rating in April, and anyone heading for a low rating has six months to improve.
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4. Collect the self-appraisalThe employee rates each KRA and lists achievements with evidence. This surfaces work the manager may have missed and makes the conversation two-way.
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5. Manager review and conversationThe manager rates each KRA and competency, writes an example for any rating of 1, 2 or 5, and discusses it face to face before submitting.
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6. Calibrate across teamsDepartment heads and HR compare ratings across teams so a “4” means the same thing everywhere. Lenient and strict managers are the biggest source of unfairness.
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7. Close the loop in payrollIssue letters, update salary structures, and run the new salary and any arrears through payroll. Agree development plans and set next year's goals in the same meeting.
A rating scale that people understand
Five points is the most common choice in India because it leaves room for a clear middle. What matters more than the number of points is a definition everyone reads the same way.
| Rating | Label | Means |
|---|
| 5 | Outstanding | Exceeded targets clearly and consistently; a role model |
| 4 | Exceeds expectations | Met every target and exceeded several |
| 3 | Meets expectations | Met the agreed targets: a good, solid year |
| 2 | Partly meets | Met some targets; needs support in specific areas |
| 1 | Below expectations | Missed most targets; needs an improvement plan |
Bell curve or not?A forced distribution (for example 10% / 20% / 50% / 15% / 5%) stops every manager from rating everyone a 4, but it can push good people into low ratings in small or high-performing teams. Infosys and HCL Technologies both dropped forced ranking in 2015, and many companies now use the curve only as a guide during calibration, not as a hard rule. Whatever you choose, write it into your appraisal policy before the cycle starts.
Turning ratings into increments
A merit matrix links the rating to the increment so that decisions are consistent. The percentages below are an illustration only; set yours from your increment budget.
| Rating | Increment (example) | Other outcomes |
|---|
| 5 | 12–15% | Promotion considered |
| 4 | 8–11% | Promotion if the role is ready |
| 3 | 5–7% | — |
| 2 | 0–3% | Development plan |
| 1 | 0% | Performance improvement plan (PIP) |
Late letters mean arrears
Increments are usually effective from 1 April, but letters often go out in May or June. The difference for the earlier months is paid as arrears in the first payroll after approval.
Example: approved in June
Old monthly gross₹40,000
Increment (8%)₹3,200
New monthly gross from April₹43,200
Arrears for April and May₹6,400
Paid in June payroll
June salary at new rate₹43,200
Arrears (April + May)₹6,400
PF, ESI, PTOn arrears too
June gross₹49,600
Statutory deductions follow the wages in the arrears. Check whether the new pay crosses the EPF wage ceiling of ₹25,000 or the ESI limit of ₹21,000, and that basic plus DA is still at least half of total pay under the 50% wage rule.
Common mistakes to avoid
- Recency bias: rating the whole year on the last two months. Quarterly notes fix this.
- Halo effect: one strong skill lifting every rating. Rate each KRA separately, with evidence.
- Everyone is a 3 (or a 4): managers avoiding hard conversations. Calibration and written examples help.
- Goals set in July: people work for a quarter without targets. Lock goals in April.
- Increments months late: morale drops and arrears pile up. Agree the payroll month for letters in advance.
How GoHRMS helps
Appraisals that run on schedule
- Configurable appraisal templates for teams and managers
- Goal tracking with an automated review workflow
- Self, manager and reviewer ratings in one place
- Salary revisions with automatic arrears in payroll
See Performance Management
Frequently asked questions
Most Indian companies hold one formal annual appraisal aligned to the April–March financial year, with a mid-year review in October and short quarterly check-ins. New joiners are usually reviewed at the end of probation.
No. No law requires forced ranking. Many companies use a bell curve only as a guide during calibration so that ratings mean the same across teams, rather than forcing a fixed percentage into each rating.
Usually from 1 April, the start of the financial year. If letters are issued later, pay the difference for the earlier months as arrears in the next payroll, with PF, ESI and other deductions calculated on the arrears.
Poor performance should first be documented and addressed through feedback and a performance improvement plan with clear goals and a time limit. Any termination must follow the employee’s contract, your standing orders and the applicable labour laws, so take legal advice before acting.
Tags:Performance appraisalAppraisal cycleRating scaleIncrementsArrears
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Gizmosys Compliance Team
Our team helps growing businesses design appraisal processes and run the payroll that follows them. Want help setting up your appraisal cycle? Talk to our HR consultants.
Sources:
Is it time to retire the bell curve? (Business Today, Feb 2026) ·
Bell curve case: Infosys and HCL (ICMR) ·
How to run calibration reviews (Leapsome).
Increment ranges and calendar dates are examples, not recommendations. This article is general information, not legal advice.