Can HRs improve compensation after appraisal if the employee conveys that he expects a better package? Given that the employee good the best rating just the his current overall package is in the average range and not the best although he gets a good rating.

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Yup it's possible but needs the blessings of management (boss++). HR alone won't take that call. You should have an official discussion with your manager / managers which can set the stage for this as a next step

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