De linking PMS with Increment - Myths & fact

Hi Colleagues,
Recently our HR Team has been challenged by an operational HOD on the principle , process and objective of PMS.
Accordingly, he claims
1. Appraisal is only worth doing if it impacts increment or else it is waste of time
2. All corporate majors ( he tried to say TATA Motors as he was an ex GM there) ignore ratings of self appraisal when considering increment.
I would request all HR members directly leading the PMS activity in their organization to share their best practices to help me counter such detrimental positioning in an evolving organization.
Look forward to here from everyone.

Dear Rimi,
First and foremost, what exactly is the process of Performance Appraisal (PA) in your company that we do not know. Objections like this arise if the across the organisation the process is not uniform. Secondly, even if the process is uniform, what were the KRAs? Many times, people do not know the basic difference between KPIs and KRAs. Thirdly, do the KRAs pass the test of SMART principle?
Please specify the KRAs of the Operations Head. Why he wants to delink ratings of the PA and the salary increase? Just because his ex-company did it, you don't have to do it.
Thanks,
Dinesh Divekar