I think the first thing that we all need to remember is that there is a difference between appraisal and hike. An appraisal is when the employee and the manager sit together and discuss the employee's performance in the past period (could be a year, quarter, month). The performance of the employee is graded (first by self and then by the manager). The idea is to identify how well the employee has done, what issues he faced and also discuss what he could do in the future to improve his performance and build his career. Going by this, an appraisal is a "mandatory" process because how else can we improve our performance unless we get some good feedback.
A hike is different - based on the company's growth, general economy and in order to retain the best employees - companies would provide a hike. The amount of hike (%) depends on the company's available budget. For the distribution of the hike, the company may or may not use the results from the appraisal (high performer/low performer etc)
So we might get a very good appraisal but no hike at all if the economy is not good and the company is not going.
Many companies have now introduced the concept of variable pay wherein your salary depends on the growth of the company.
