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Free letter template · Word

Performance-Based Increment Letter

A performance-based increment letter ties an employee's pay increase directly to measurable results, naming the KRAs achieved and the rating earned. It reinforces a pay-for-performance culture by showing exactly which outcomes drove the increase.

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Preview of the letter

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[Company Logo][Company Name]

PERFORMANCE-BASED INCREMENT LETTER

Ref. No.:
[Reference Number]
Date:
[Date]

To,
[Employee Name]
Employee ID: [Employee ID]
[Designation], [Department]

Subject: Merit Increment Based on Performance Review

Dear [Employee Name],
Your performance for the review period [Review Period] has been assessed against the key result areas agreed with [Reporting Manager]. We are pleased to share the outcome below.

Key Result AreaTargetAchievementScore
[KRA 1][Target][Achievement][Score]
[KRA 2][Target][Achievement][Score]
[KRA 3][Target][Achievement][Score]
[KRA 4][Target][Achievement][Score]
Overall Rating[Rating]

Under our merit framework, a rating of [Rating] qualifies for an increment of [Percentage]% on fixed pay. Accordingly, your revised compensation is as follows:

ParticularsBefore (₹)After (₹)
Fixed Annual CTC[Amount][Amount]
Target Variable Pay[Amount][Amount]
Total Annual CTC[Previous CTC][CTC]

The revision is effective from [Effective Date]. For the coming period, your manager will set goals around [Focus Area], and we encourage you to build on your strengths in [Strength]. A revised salary breakup will be shared separately by HR.

Congratulations on a strong performance.

Regards,

[Reporting Manager]
[Designation]
For [Company Name]
[HR Name]
HR Department

What this template includes

  • Table of KRAs with target, achievement and score
  • Overall rating and where it sits on the scale
  • Increment percentage linked to the rating
  • Revised fixed pay and effective date
  • Expectations for the next review period
  • Manager and HR signatures

When to use it

  • Companies with a merit matrix that links rating to increment percentage
  • Recognising a top performer with an above-band increase
  • Sales, operations or delivery roles with measurable KRAs
  • Mid-year merit reviews for high-potential employees

How to customise this template

  1. 1List 3–5 KRAs from the appraisal form with actual numbers achieved
  2. 2Explain the merit band in one line (e.g. rating 4 earns [Percentage]%)
  3. 3Add a stretch goal for the next period
  4. 4Remove the variable pay line if not applicable

HR tips

  • Use the same data as the appraisal form so there is no mismatch
  • Be specific: 'achieved 112% of quarterly target' beats 'excellent work'
  • Avoid comparing the employee with named colleagues
  • Follow up with a development conversation

For HR & hiring managers

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Frequently asked questions

What is a performance-based increment?+

It is a pay increase whose size depends on the employee's measured performance, usually through a rating or KRA score, rather than a flat increase for everyone.

How is a merit increment calculated?+

Companies typically use a merit matrix that maps rating (and sometimes position in pay range) to an increment percentage approved within the yearly budget.

Should KRAs be mentioned in the increment letter?+

Mentioning key achievements makes the link between performance and pay transparent and helps the employee see what to repeat.