Studies have proved that appraisals affect employee retention to a great extent. However, to understand the larger implications of appraisals it is necessary look beyond compensation benefits or ‘salary hike’. The 17th edition of the Annual Salary Increase Survey by Aon Hewitt, released in Feb 2013, indicates that companies have started giving better increments to top performers. According to the survey, this year key talent is projected to get an average increase of 14 per cent. Such steps go a long way in retaining the star performers. However, there are some other factors too that need attention.

Many employees (even managers) look at appraisals as a promotion and salary hike exercise. The fact is that it is just a part of the appraisal exercise. Help you employees in understanding their professional goals. To a great extent, the performance review exercise is about understanding how well are the employees aligned to the company objectives. This exercise should be utilized to identify the areas where an employee can contribute well.

The performance review exercise can help a manager know whether the employee understands his professional goals and whether his efforts are aligned to the organizational objectives. The motive of this discussion should be to underline the highs and lows of employees, understand their thought process and to know how their skills can be utilized towards organizational growth. It can also be utilized to know what kind of trainings employees need. Appraisal discussions can be really useful in this. An article titled Importance of the Fair Appraisal System on the website Shine.com highlights the benefits of the performance review exercise can be increased with the help of trainings. It says, “The process of appraisal can be improved through proper training of the appraisers. Training teaches the appraiser to present performance expectation from employees in a systematic and planned way. It also educates the appraiser in understanding the importance of regular constructive feedback in a diplomatic way to maintain objectivity and at the same time not hurt the sentiments of the employees. ”

Companies can use the appraisal process to chalk out succession plan also. Performance review is a great time to identify future leaders and to plan the succession for the senior to middle level positions. In an article titled The Effect of Performance Appraisal on Employee Retention, writer Ruth Mayhew points out, “Regardless of the organization's size and type, performance appraisals for career-oriented employees should contain plans for training, professional development and other means by which the company intends to mentor promising leaders.” It is essential to make the employees feel that they have growth opportunities with an organization. Besides engaging high-performers, this will help an organization in developing an effective succession plan.