What is a Salary Revision?

Key Reasons for Salary Revision

Salary revisions do not occur arbitrarily. HR and management typically initiate them after considering several business and employee-related factors.

1. Employee Performance Evaluation

An employee’s performance remains one of the strongest drivers for salary revision. Those who consistently meet or exceed performance metrics are often rewarded with higher pay. This not only rewards individual achievement but also encourages others to perform better.

2. Market Competitiveness and Benchmarking

Salaries are often benchmarked against industry standards. If similar roles in competing firms are paid more, HR may revise salaries to remain competitive. Benchmarking surveys conducted by consulting firms are frequently used to support such decisions.

3. Inflation and Cost of Living Adjustments

Inflation directly impacts an employee's purchasing power. Organisations often revise salaries to help employees keep pace with rising costs of housing, fuel, healthcare, and education. This ensures employees do not feel undervalued when economic pressures rise.

4. Promotion or Change in Role

When employees move to a higher role or take on additional responsibilities, salary revision is a natural step. A revised salary ensures their pay matches their new position and accountability.

5. Retention of Critical Talent

High-performing employees or those in niche roles may receive salary revisions outside the usual cycle. This is an effective employee retention measure to prevent them from moving to competitors.

Difference Between Salary Revision and Increment

Salary revision and increment are often used interchangeably, but they are not the same. The table below outlines the difference:

Types of Salary Revisions

Salary revisions in India can take different forms depending on organisational needs. The following are the most common types:

1. Annual/Regular Revision

Conducted once a year, this revision usually follows the appraisal cycle. Most organisations in India implement annual revisions to maintain consistency.

2. Performance-Based Revision

Top performers are given special revisions in addition to standard increments. This helps maintain a high-performance culture within the company.

3. Market Adjustment Revision

If market surveys reveal a pay gap between company salaries and industry benchmarks, adjustments are made to prevent attrition.

4. Promotional Revision

When an employee is promoted, their salary is revised to align with the responsibilities of their new role.

5. Retention-Based Revision

To prevent attrition of high-value employees, HR may revise pay mid-cycle to match competing offers.

Salary Revision Process

Salary revision involves multiple steps to ensure fairness and alignment with company budgets. Below is a typical process followed by Indian organisations:

1. Performance Appraisal and Review Cycle

At the end of the financial year, employees undergo a structured performance appraisal. Their ratings influence the extent of salary revision. This stage often includes self-assessments, peer reviews, and manager evaluations, which together provide a holistic picture of employee contributions.

2. HR and Management Discussions

HR teams prepare proposals by comparing performance data, industry benchmarks, and available budgets. These proposals are reviewed by management to ensure alignment with the company’s strategic goals. Discussions may also include considerations like market competitiveness, retention risks, and the need to reward critical skill sets.

3. Budget Allocation for Increments

Finance and HR jointly determine the budget that can be allocated for salary revisions. This step ensures revisions are sustainable for the business. Factors such as projected revenue, market conditions, and overall payroll costs are assessed before finalising increments. The objective is to strike a balance between rewarding employees and maintaining financial health.

4. Communication to Employees

Once decisions are finalised, HR issues a salary revision letter to employees. This letter communicates the revised salary structure and effective date. In some companies, one-on-one discussions accompany the letter, where managers explain the basis of the salary increment. Clear and transparent communication reduces dissatisfaction, prevents misconceptions, and reinforces trust between employees and the organisation.

Benefits of Salary Revision

A well-executed salary revision policy offers multiple advantages for both employees and employers.

1. Boosts Employee Motivation and Productivity: Employees who receive fair salary revisions are motivated to perform better. It creates a sense of recognition and achievement. This directly translates into higher efficiency and overall organisational culture growth.
2. Improves Retention and Reduces Attrition: Revisions demonstrate that the company values its workforce. This helps reduce the risk of employees leaving for better-paying jobs. It also fosters long-term loyalty and stability within teams.
3. Keeps Company Compensation Competitive: Revisions aligned with market benchmarks ensure the company remains an attractive employer. This prevents skill gaps by helping retain top talent in a competitive landscape.
4. Enhances Employer Branding: Companies known for fair salary revisions build a stronger reputation in the job market, making it easier to attract skilled professionals. Such a positive image strengthens the company's position as an employer of choice.

Challenges in Salary Revision

Despite the benefits, salary revisions are not without challenges. HR leaders in India face the following issues:

1. Budget Constraints for Organisations

Companies may not always have sufficient budget for significant revisions, especially in slow-growth years. Tight financial situations force management to make tough choices, often prioritising business sustainability over employee increments. This can lead to minimal or delayed revisions, which might impact employee morale despite being unavoidable.

2. Employee Dissatisfaction if Not Managed Transparently

If revisions are not communicated clearly, employees may perceive bias or unfairness. This can damage morale instead of improving it. Lack of transparency often creates mistrust, rumours, and disengagement, as employees may feel undervalued or compare themselves negatively with peers. A well-structured communication strategy is critical to avoid such misunderstandings.

3. Maintaining Fairness Across Roles and Teams

Ensuring that employees across departments receive fair treatment can be challenging, particularly when different roles contribute differently to business growth. A sales-driven role, for instance, may demand higher rewards compared to a support role, yet both are essential to the company’s success.

Related: HR’s Guide to Creating and Updating an Employee Handbook

Salary Revision Template

A salary revision letter should be concise, professional, and transparent. Below is a simple template for HR professionals in India:

[Company Letterhead]

Date: [DD/MM/YYYY]
Employee Name: [Employee Full Name]
Employee ID: [Employee ID]
Designation: [Current Designation]

Subject: Salary Revision Letter

Dear [Employee Name],

Based on your performance and contributions during the review period, we are pleased to inform you of your revised salary structure.

Effective [Effective Date], your revised Cost to Company (CTC) will be INR [Revised Amount] per annum. A detailed break-up of your revised compensation is enclosed in the annexure.

We thank you for your dedication and look forward to your continued contribution to [Company Name].

Sincerely,
[Name]
[Designation]
HR Department

This template can be customised according to company policies. Many organisations also provide a salary revision calculator to help employees understand the change in take-home pay.

Conclusion

Salary revision is more than just an HR routine—it is a strategic tool that balances employee satisfaction with business objectives. From recognising performance to staying aligned with market standards, salary revision plays a vital role in shaping workplace morale. For employees, a transparent process supported by tools such as a salary revision calculator provides clarity and builds trust. For employers, it strengthens retention and boosts productivity.