How To Write A Compensation Letter (With A Template)

Updated 17 April 2023

There are many documents that a manager or human resources (HR) professional might write during the hiring and onboarding process, such as offer letters and onboarding schedules. These documents ensure that new employees have the information they need as they start a new job at the company. One key type of letter is a compensation letter, which provides valuable information about a position's salary and benefits.

In this article, we define compensation letters, explain why these documents are important, describe how to write one and share a template and example to help you write these documents.

Please note that none of the companies, institutions or organisations mentioned in this article are associated with Indeed.

What Is A Compensation Letter?

A compensation letter is a document that explains the compensation of a job offer to a candidate, including a salary or hourly wage and benefits. It often accompanies an offer letter, which describes the job's responsibilities and the organisational structure of the department. Sometimes, managers write these letters to candidates that they have chosen to fill certain positions in their departments. At other companies, the HR team writes these letters because they are familiar with the company's pay and benefits structure. After receiving this letter, a candidate can choose to accept or decline an offer.

Why Are These Letters Important?

Learning how to write this type of letter has many benefits if you are a management or HR professional. Here are some ways these letters benefit a company:

They encourage candidates to accept a job offer. A well-written letter that explains the job's salary and benefits can persuade your chosen candidate to accept a job offer.
They provide transparency in the hiring process. If candidates understand the terms of the company's offer, they can make the right choice for their career goals, which can make them more productive employees.
They give candidates and managers a resource for other conversations. The letter explains every aspect of the candidate's initial offer, which can give the employee and their supervisor a starting point for later conversations about promotions and raises.

How To Write A Letter For Compensation In 6 Steps

Here are six steps you can take to write one of these letters:

1. Collect the required information

If you are an HR professional drafting a letter for another team, you might request the necessary information from the manager making the offer. Conversely, if you are a manager writing a letter for a candidate you have chosen, you might already have the offer information compiled Key details for this type of letter include:

Starting salary
Any additional cash bonuses
Summary of benefits, including health insurance and retirement savings accounts
Number of paid days off
Required hours per week

2. Date and address the letter

Including the date of writing at the top of the document can provide transparency because it shows that the information you have included is accurate as of today's date. If it changes later, the letter can be a valuable resource to track the employee's payment and benefits information.

Then, add the recipient's first and last name as indicated on their application paperwork. If you are sending the letter via post, include the recipient's street address and postal code. Consider adding other contact details, like the recipient's e-mail address and phone number. Including this information gives the recipient the opportunity to correct any mistakes in their application file.

3. Greet the reader and summarise the letter's contents

Next, write a salutation and tell the reader that the company is offering them the position. Include the position title, the department with the vacancy and the overall compensation. This opening statement can help the candidate identify whether they are interested in the position at that compensation level and encourage them to read the rest of the letter. You can also include the predicted start date for the job. While the candidate and their future manager might negotiate a different start date, providing this information can help them begin to plan their exit from their current job.

4. Explain the compensation in detail

In this next paragraph, provide specific details about the compensation plan for the position. To make it easier for your reader to understand the different parts of the compensation plan, consider using a chart or bulleted list. For instance, you might list the salary and potential bonuses in one bullet point, followed by separate points for the health insurance, retirement savings and paid time off included in the position. Include a disclaimer stating that this information is current as of the date you are writing the letter.

If there are any requirements for different parts, include them in this section. As an example, a new employee at a company might not qualify for retirement savings until they have worked at the company for six months. Including this information in the letter ensures that the candidate has all the information they need for their final decision. During a job search, strong candidates may have several offers, and showing transparency in the offer letter can give the candidate a good impression of the company, which might increase the chances of them accepting the position.

5. Describe the next steps

In the next section, provide directions so your recipient knows how to respond to the letter. You might include your e-mail address or the contact details of the department's manager. The manager may have already contacted the candidate with a formal or informal offer letter, so check with them to make sure that the directions you give the candidate match what they have said. For instance, if the department's manager already told the candidate to accept the job via an online portal, you can include that information in the letter to reinforce their directions.

Depending on the position, you might also provide a few key dates for the recipient. If a company needs a position filled quickly, the manager might place a deadline for accepting the role. If the candidate does not respond, the manager can offer the job to their next choice or begin interviewing again. Including this date in the letter sets expectations for the candidate and the company. You might also include the date that the compensation might become valid if the candidate accepts the job, so they can make plans to cover their immediate financial needs.

6. Add a conclusion

To end your letter, you can simply provide your name, title and contact information. If company policy requires HR communication to use e-mail or an online portal, provide this information in the letter so the recipient knows how to contact you if they have questions. After you have concluded your letter, you can mail or e-mail it to the recipient. Keep a copy in a physical or electronic file folder so you can refer to it later.

Template

Here is a template you can use to draft a letter about compensation for a job candidate:

[Date]

[Recipient's first and last name]

[Recipient's contact details]

Dear [Recipient's first and last name],

On behalf of [insert the company name here], I am pleased to offer you the position of [insert job title or reason for compensation]. The total compensation for this position is [salary] per year.

Details of your compensation disclosed below, current as of [date]:

[List dollar amount of compensation] plus a potential cash bonus of up to [potential bonus amount]
[Health or life insurance provided in job]
[Retirement account, plus any restrictions]
[Paid days off]

This offer remains active through [date the company plans to retract the offer]. If you accept this position, the compensation becomes active on [date compensation becomes active]. To accept or decline this position, please respond to this e-mail or contact [manager name] at [email address]. If you have any questions, please contact [name and e-mail for manager or HR department].

Sincerely,

[Your first and last name]

[Your title]

[Your contact information]

Example

Here is an example of a letter of this type that you can use as a guide while writing your own:

2 September 2022

Anjali Kumar

16/22, Fifth Avenue,

Gandhi Colony, Ahmedabad 200094**7

ajkumar@email.com

Dear Anjali Kumar,

On behalf of 4Elements Programming Ltd,. I am pleased to offer you the position of Senior Programmer. The total compensation for this position is ₹1,044,380 per year.

Details of your compensation disclosed below, current as of 2 September 2022:

₹1,044,380 plus a potential cash bonus of up to ₹10,000, subject to managerial approval
Full health insurance and life insurance benefits
Retirement savings options after six months in the position
12 annual paid days off

This offer remains active until 19 September 2022. If you accept this position, the compensation becomes active on 10 October 2022. To accept or decline this position, please respond to this e-mail or contact Jaya Patel at jpatel@fourelementsprogramming.com. If you have any questions, please contact the HR department at hr@fourelementsprogramming.com