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not get these things as CASH, but instead as benefits. However, the company adds all these to your
CTC figure, as it is paying for it.
Trick 5 Putting Large chunk of variable component in CTC
Another famous trick played by companies (especially those in sectors that are performance
based) is to add a considerable amount of variable component to the salary and keep the fixed part
small. The CTC number is then provided based on an average performance assumption. For
example if your CTC was Rupees 10 lakhs, it could happen that 4 lakhs of the CTC would be
FIXED and the remaining 6 lakhs would be variable. The part of the variable component
ultimately paid to you could go down or up depending on your performance or some parameter
that supposedly would be under your control. It could be sales, the number of clients you bring in
etc. etc.
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{ 131 comments read them below or add one }
1 Aravinth September 2, 2013 at 9:49 am
Yep, this is absolutely true. I am still travelling on the same boat!
Reply
2 Manish Chauhan September 3, 2013 at 2:01 pm
Thanks for sharing . can you explain your case ?
Reply
3 RP September 2, 2013 at 10:45 am
Hi,
I recently joined an IT MNC and They offered me 60% rise at the time of joining and they
had 18% of fix pay as variable pay. But however in the first year they hardly paid me 2% of
that.
thanks,
RP
Reply
4 SameSaga September 2, 2013 at 11:15 am
Its Accenture
Reply
5 RP September 2, 2013 at 12:05 pm
Yes. Its Accenture.. :)
Reply
6 abhisheka September 2, 2013 at 2:44 pm
Thats very helpful comment for me! If got any opportunity there :)
Reply
7 RP September 2, 2013 at 3:06 pm
Before accepting the offer ensure that you get your desired fix pay.
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8 RK September 2, 2013 at 11:21 am
I guess its Accenture which is having higher VP and lower Payout at year end..
Reply
9 King September 2, 2013 at 11:31 am
Yes this is there since long time.
So we must ask that iam getting this much permonth take home and iam expecting that
much hike to accept your offer.
You must do a salary negotiations based on Take home salary . not on CTC.
Reply
10 Amit September 2, 2013 at 11:38 am
I am not sureBut That is not wrong practice by companies..CTC does mean Cost to the
company..so all the component which has been mentioned in article is called part of CTC
only.Can not be counted seprately. In simple waycost paid by company for one
particular employee..All the components are some how given to employee only. I
would rather sayThe way employee look at this CTC is wrongCTC is never meant for
Employee Employee should focus on or ask about what is take home salary to HR..this
is right and important point to know about their salarythen they should compare it with
salary they were getting.
Reply
11 Sathya Thambusamy September 2, 2013 at 11:52 am
I agree with Amit, only when these are not properly disclosed would they become
unethical. When they are disclosed they all contribute to some benefit enjoyed by
employee.
Reply
12 cbrcoder September 2, 2013 at 2:43 pm
By that logic, they should also mention the electricity used by employee while at
work, the water and rent charges per employee etc! Cost to Company makes no sense.
You cant compare CTC
Reply
13 Jai September 3, 2013 at 9:34 am
@cbrcoder Letss say if that particular employee is not required, insurance,
food etc which is part CTC will be saved. This is not the case with electricity
etc as no matter if this employee joins or not, operating expenses will continue
to occur. I agree, employee should be more cautious to review take home pay
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before joining.
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14 NAGAMOHAN M September 2, 2013 at 11:55 am
Some Companies even consider Gratuity(Which is payable 5 years from the date of
joining),Super Annuation, EL Encashments as part of their CTC,Which makes the ctc figure
looks big.But it is very clearly mentioned as Cost to Company not as Cost to Individual so
we should have to work at take home pay and decide accordingly.I dont find any fault with
the Employers,It is our duty to study the CTC structure in complete.
Reply
15 Srinivas September 2, 2013 at 12:10 pm
CTC means Cost to the company. One should not take it as take home salary. If one sees
from this perspective, company is right to include all the points mentioned.
If this distinction is understood, there will be less confusion.
Reply
16 Manish Chauhan September 3, 2013 at 1:55 pm
Yes. The article aims at that only .
Reply
17 Nandan September 2, 2013 at 1:52 pm
I fell for a similar trap while joining an IT MNC recently (from another which was equally
good at inflating its VP compoment). Its been only 3 months now since I joined this
company and the worst part is that the take home I get now is almost same as that I was
getting in my earlier company (though on paper the CTC is having 35% hike over the
previous company CTC) :(
Reply
18 Manish Chauhan September 3, 2013 at 1:55 pm
thanks for sharing your case Nandan . I added it to original article ! , Thanks for
contribution !
Reply
19 abhisheka September 2, 2013 at 2:41 pm
Many times we just ignore very common terms, have lots of meaning behind it.
Must read for students.
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Thanks Manish
Reply
20 Manish Chauhan September 3, 2013 at 12:37 pm
thanks
Reply
21 manyam September 2, 2013 at 3:09 pm
Yes, employees need to focus on asking what is my take home during discussion with HR.
But I never heard Aircon charges adding into CTC :-).
Reply
22 Manish Chauhan September 3, 2013 at 12:37 pm
Yea .. This is what they have to focus on !
Reply
23 Maulik September 2, 2013 at 3:17 pm
I disagree with this article. This article is confusing and not educating. By excluding all the
components you are ingnoring the benefits you get out of it. Just an example lets say
medical insurance in provided by Company A to entire family including dependent
parents and other Company B providing same insurance but only to the employee. In this
case naturally the terms of Company A are more favourable than B assuming everything
else same. One should not see only take home but see various aspects involved. While I
understand that variable part should be also calculated with the pinch of the salt and
Employee has to be more diligent in considering that.
Reply
24 Robin September 2, 2013 at 8:30 pm
Manish isnt calling it unethical. Someone who understands the break ups will not
complain about the CTC concept. But most learn slowly and the hard way. A lot of
things are not understood when fresh out of college. Companies will increase
components in the CTC to get better hiring slots in campuses. While I agree that
certain pieces dont convert to in hand but do add to savings or benefits a good
thing I would say. But there are some annoying tricks as well. In my case CTC was
bumped up by 1.5 lacs ( in 2007 ) as relocation package, Sad part was I could get only
what I could use. Since this was one time, next year the CTC went down, bizarre.
Manish reminds me of our place cell days :)
Reply
25 Manish Chauhan September 3, 2013 at 10:51 am
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Yes. A lot of things dont covert, but helps like EPF, Trasportation, good
coupons etc . So On a second look I can see that there is Good component and
then there is Bad component . Bad component in CTC is something which one
cant use all the time and is one time , like Bonus , RSU etc.
Reply
26 Manish Chauhan September 3, 2013 at 12:36 pm
Maulik
All the article is doing and showing people how things happen . A lot of freshers are
not aware that CTC is not salary . You can say that they should know the basic things
like these, but thats what the article is doing.
However, I agree with you that the article should have also mentioned that a lot of
things which are not in hand, are extremely beneficial to employees, but the main
point of the article was that CTC can be very desceptive at times. What do you think ?
Reply
27 A September 24, 2013 at 8:20 pm
Maulik The way to see is salary is not equal to CTC /12. Most of them get confused
with CTC and assume they have got that much salary. See benefits and take home pay
as separate entities before accepting an offer.
Reply
28 Joel Trinidade September 2, 2013 at 3:22 pm
Dear Manish,
There used to be a old saying A bird in hand is worth two in the bush . This article is a
testimony to this saying . In hand salary is what matters , CTC is a myth to shatter .
Manish , please do a article on food coupons . Its one big sham .
Regards
Joel
Reply
29 Manish Chauhan September 3, 2013 at 12:34 pm
Yea .. True . Will do a story on food coupouns . But I am not sure which point do you
not like on food coupouns ?
Reply
30 Joel Trinidade September 4, 2013 at 12:59 pm
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Dear Manish,
There are a lot of thinngs i dont like about food coupons .
1) The very fact that they are in form of coupons . I would have preferred a card
something like debitcard. I guess it has started but its still to catch up. Its
cumbersome to manage your wallet , the cards , money , coins and then
coupons . Where are I work these coupons need to be exchanged for coupons
from a local caterer who serves us our lunch. Its too much of a hassle.
2) Secondly I have found that a packet of snacks if bought through cash cost
about Rs20/- but if bought via coupons its Rs20/- coupons but Rs2/- in coin . So
basically it has cost me Rs22/- . Now if i belong to 10% tax bracket, the benefit
i get in saving tax on using coupons goes to retailer as additional payment.
3)No wide spread acceptability and if they accept then its with reluctance or
after coercion. The reason being retailers, small time vendors dont like to wait
for there payments. In some cases it takes 45 days.
4)Most of the places where these coupons are accepted are places like KFC ,
Mc donalds , subways , pizza joints basically all places that would be classified
as a nutritionist worst nightmare. Somehow i feel its a way to promote these
foreign made companies and brands at the cost of our health. One more thing to
be noted is that all these places sell exorbitantly priced junk food.
5) There are many more points but i am no mood to type so much .. but i guess
if someone where to first hand experience and look at things closely will release
food coupons are a big pain and sham.
Joel
Reply
31 Manish Chauhan September 7, 2013 at 5:24 pm
Yes, I agree with all these points . But I am sure employers will have their
own viewpoint on this. I mean from business point of view, it might make
a lot of sense , and might save them a lot of money, may be through tax
point of view.
Reply
32 Joel Trinidade September 10, 2013 at 12:31 pm
Thats where your expertise and resources come in Manish. I listed
5 points why i dont like food coupons to start with.
Reply
33 Manish Chauhan September 18, 2013 at 8:54 am
Thanks for listing those . Let me check them !
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34 Jagan September 12, 2013 at 10:02 pm
I think here one point is missed in using food coupons, i.e., if you try to
buy a snack of Rs 18\- and you have paid a food coupon of Rs 20\- your
not supposed to get a change of Rs 2\Reply
35 Rajasekhar September 2, 2013 at 5:11 pm
Let us take a case of Variable pay component being included as part of CTC. I have never
seen a company explaining at what grade they will include variable pay in over all CTC.
Suppose appraisal grade ranges from 1 (poor) to 5(Excellant) none of the companies given
so far mentions at what grade they will pay include variable pay. So Inclusion of Variable
pay in CTC itself is questionable as it depends on many factors which new joinee will
finally come to know of.And also that appraisal will be donw only at the end of year they
cannot include at the time of joining .
Reply
36 Manish Chauhan September 3, 2013 at 12:30 pm
Correct . Which concludes that its mostly a honey trap ! . RIGHT ?
Reply
37 Ashvin September 2, 2013 at 6:18 pm
Yup. Was told me that a performer like you will easily get 25% to 30% of your fixed CTC as
VP. Up on joining, could know that there are 20 goals and you need to perform 130% to
become eligible for 25%. Moreover, there is no measurement how it is 130%?
Reply
38 Manish Chauhan September 3, 2013 at 12:27 pm
Its just a (honey)trap !
Reply
39 Govarthanan September 2, 2013 at 6:26 pm
Hi Manish,
Coincidence! Today I got my offer from an Top Indian IT firm. Luckily I am trapped in
variable pay :).. Good article to learn about CTC
Reply
40 Manish Chauhan September 3, 2013 at 12:22 pm
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one have to also take into consideration of the relocation expenses like rent, cost of living in
the area etc. and then finally calculate what is the real world hike you get an what is the real
amount you have in your hand
Real Take home = Take home salary cost incurred because of relocation (like
rent,transport etc.)
if you are satisfied with the real take home then u may not regret on your CTC
Reply
60 Manish Chauhan September 3, 2013 at 12:20 pm
True . this is very very important . I have seen people relocating and putting lots of
money only to realise they have to relocate again :)
Reply
61 Anjan March 8, 2014 at 5:55 am
I think this is one of the most important points raised here. The Real Take Home
Salary is what matters most and should be the deciding factor when considering a new
job offer. Even a 30-40% salary hike can be nullified because of relocation expenses.
Also, the convenience factor should be given equal importance. If you were
previously going to office from home and for your new job, you have to shift to
another state and stay in rented accommodation, that 50% hike in salary might not
make any difference.
Reply
62 Manish Chauhan March 12, 2014 at 5:44 pm
True ..
Just one point, even those thing which you dont get in hand matters like EPF or
other benefits ! , only you can decide how much they matter to you !
Reply
63 RAMESH September 3, 2013 at 11:59 am
True, but why working with that organisation if you all know about it?
Reply
64 Manish Chauhan September 3, 2013 at 12:19 pm
Its just an awareness article, so that people atleast know how things happen and can
be cautious next time
Reply
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read for all those who are thinking to change their jobs.
Reply
72 Manish Chauhan September 3, 2013 at 3:18 pm
Thanks for appreciation :)
Reply
73 Manish Chauhan September 7, 2013 at 6:07 pm
Thanks Akmehta !
Reply
74 Mittal Shah September 3, 2013 at 3:39 pm
Yep, this is absolutely true. I am still travelling on the same boat
Reply
75 Manish Chauhan September 7, 2013 at 6:04 pm
Thanks for sharing that Mittal !
Reply
76 Chitra September 3, 2013 at 4:50 pm
As always, an excellent article Manish! In fact, my current employer also offered Hot Skill
Bonus to the employees with the specific skillsets which went upto 2.5 lac. However during
recession time, company decided not to share the Hot Skill Bonus for that year and the pay
tremendously went down for the people who were getting Hot Skill Bonus.
Reply
77 Manish Chauhan September 7, 2013 at 6:03 pm
Thanks for sharing Chitra
Anything which is not fixed and variable can always get removed during recession
time .
Reply
78 Ruminating Optimist September 3, 2013 at 5:16 pm
Manish, I believe as long as the employer is clearly stating all the components of the CTC in
the offer letter, the use of the term CTC and hence various components used therein is ok.
Reply
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85 Nikhil September 4, 2013 at 11:58 pm
Hi Manish
I also went through all this when I got placed. But my curiosity to explore took me to a land
of no surprises when I received my first payslip.
In India almost every company inflates CTC (fortunately mine does only for annual bonus
and EPF share and not on insurance and benefits). I have heard some Investment Banks
paying 50 lacs p.a. which is just impossible to digest. But the ground reality is that 40% of
that is just your floor rent (occupying 66 cubicle around Nariman Point, Mumbai will cost
you a lot). Another instance of this is; during campus recruitment in our college a 9.5 CTC
and 11.8 CTC (diff of 2.3 = ~20,000 pm) ultimately had only 1500 per month take home
difference :-o
Its better to always ask (or at least confirm) for Gross Salary i.e. (your take home + plus
TDS + employee PF contri + prof tax). This is directly related to the employee and gives a
fair idea of how much youll take home. And it should not be a matter of shame or
reluctance for someone (usually a fresher) to ask such questions. During my hiring season;
80% of Q&A were related to compensation :)
Reply
86 Manish Chauhan September 7, 2013 at 5:09 pm
Nice :) . Thanks for sharing that Nikhil
Pretty much story of every person :) .
Reply
87 Joel Trinidade September 5, 2013 at 2:54 pm
Till the time i have written this comment , there are 70 post above me including replies.
After going through them I am asking myself Can i safely conclude that inflated packages
is more wide spread in the IT field then others ?
Reply
88 Manish Chauhan September 7, 2013 at 4:59 pm
Yes, I would say IT sector is one , another is management or sales ! (MBA)
Reply
89 Joel Trinidade September 10, 2013 at 12:36 pm
During my Fathers and grand fathers generations , employees in organizations
were happy and content. Then somewhere came MBA and things changed for
employees.
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90 Manish Chauhan September 18, 2013 at 8:53 am
Yea ..
Reply
91 Rajesh September 6, 2013 at 12:38 pm
Dont just look at the CTC and Take home salary.
At one stage of your career, Higher the take home = higher the tax burden. Remember you
can only invest 1lac through 80C + Home loan exempt.
The key here is the Basic Salary. Every component revolve round it.
Negotiate your new employer for a higher Basic salary and keep the variable percentage low
if possible. It will increase your HRA component, Both your and employers PF contribution,
Gratuity, LTA and Leave encashment. Dont get worried that you are contributing more to
PF and Gratuity (There is no better way of investment and you get it back eventually).
Reply
92 Jagan September 12, 2013 at 10:11 pm
Yes, your right that we get the PF and Gratuity(conditionally) back, and related to PF
it is tax free when we get it back
Reply
93 Snehal Sukhadia September 9, 2013 at 7:11 pm
Manish,
Very nice article on the tricks played by most of the companies. This reminds me of the first
placement where it took almost a day for me to understand the complex salary structure.
Even then I became a victim of this CTC thing. However during my next job I made sure to
inquire about the take home salary.
During my campus placement days, I had few of my friends who were offered a CTC of 12
lacs p.a. while others were just offered 9 lacs p.a. But eventually when they calculated the
take home salary, there was a marginal difference in both of them. This was because the
company offering a CTC of 12 lacs had included an interest free loan of Rs 2.5 lacs.
Thanks for writing this story!
Reply
94 Joel Trinidade September 10, 2013 at 12:38 pm
2.5 Interest free loan , super idea . I am sure some MBA guy in the recruiting
company must have come up with this idea and I am also sure that this placement was
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otherstories
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109 Manish Chauhan September 13, 2013 at 5:53 pm
Yes Ashwin
I am aware of the content theft which has happened. I am on mails with these guys
who copies it ! . Would you be able to comment on that article that it was originally
taken from jagoinvestor and you are a regular reader ?
Reply
110 Ashwin September 13, 2013 at 8:19 pm
Done, Manish..its awaiting moderation, lets see how fast they let it get posted
:)
Reply
111 Manish Chauhan September 17, 2013 at 7:11 pm
sure !
Reply
112 Suresh @ Best Investment Options September 14, 2013 at 9:52 pm
Well explained Manish. This is how employers fool employees. If such awareness is there, I
feel employees would be aware and such tricks can be known upfront.
Reply
113 Manish Chauhan September 17, 2013 at 7:08 pm
Thanks
Reply
114 Shan September 29, 2013 at 1:30 pm
Will there ever be an End to CTC. Hope some Court in india give direction on the
components to be included in CTC. The best part is All the MNC have a Strict Code of
Conduct rule not to share & Compare the CTC Details with fellow person (or) Any one,
And many people follow this rule like Bible Employee Contribution in EPF is taken for
Income Tax rebate and Company Contribution to EPF which is included in CTC is not taken
for Computation into Employee Income Tax rebate. If we ask for the explanation about
where that money goes on Computation there will be no answer from any Companies
Internal Dept. By doing this Many employee feel it as a Waste instrument to contribute
instead they can contribute the same amount to PPF atleast they need not have worry once
they Change job. Also if the EPF is with Trust, There are other charges included as
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7. In case of PF withdrawal Maximum number of days Employee can wait before Suing the
company for its failure.
8. Clear & Standard set of Documents required for withdrawal of PF if employee quits.
9. If Pension & Gratuity fund is included in CTC how its going to be settled.
10. Clarity in Income Tax rebate on Company contribution if its included in CTC.
11. As EPF is launching the option to check the status of contribution Online. How can
employee know the EPF fund if parked in Trust.
12. Tax Implication on EPF if withdrawn before the the age of 60.
13. On Variable Pay if Employee Performance is 100% and due to bad decision by
Management company performance is only 5% how the Variable pay would be calculated.
14. Along with CTC Gross Take home & Nett Take home should be Clear if divided by 12
should be able to arrive at a Fixed figure excluding Tax.
15. How Employee Leaves would be calculated. Will it be only the Basic be paid (or) the
Total Gross will be computed. If employee have 3o days of Leave balance at the time he
quit the company how much money he can expect 30 day Gross salary (or) 30 Day Basic
Salary.
16. If Employee quit in middle of Financial year from the company after giving 100% he
have contributed to the Company he is eligible for his share of Variable payout during his
tenure as its included in CTC. Does he have right to claim the same.
17. Govt have stated the rule that Bond is illegal but many companies still put up a Bond on
Freshers that they should not quit the company before bond expires. They also send a Court
Notice if the person abscond the company and many people pay the Penalty amount to those
companies How to stop this and whom to approach to get the company punished for such
act.
18. How can the employee know the TDS detucted from his salary have reached Govt tax
dept every month there is no Mechanism to track. In this way Company can Fool around on
the Deduction and avoid paying the Tax.
19. In case the PF is with Trust what Benefits Employee can avail extra like Lower interest
on Loan against PF, Higher Interest rate on PF, Etc.. If Employee get the same benefit as
EPF by govt he should be given an option to choose where he want to keep the account
Either with Govt EPF (or) Company PF Trust.
20. Whom & where to approach in case if the company does all the above. Is There Single
window for employee grevience.
Reply
117 Manish Chauhan October 7, 2013 at 8:47 am
I suggest you open a thread on forum to ask these , and better create different threads
to ask each point. Its tough to get anyone answer such a long query
http://www.jagoinvestor.com/forum/
Reply
118 Guest November 4, 2013 at 11:35 am
It seems Accenture is very clever in getting things done in a very highly cost effective way
!!!
Reply
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laptop and monitors are plugged into the wall unit for 9+ hrs a day, 5 days a week has
caused my monthly electricity bill to jump from 800+ to 2000+. When I work at my office,
the electricity costs are borne by the company. Same goes with Internet usage, or telephone
usage.
While the other options like One Time Bonus or Stock Options dont seem to provide
instant money in hand, or periodic income like Salary; at the end of the day, it is still
something the company is spending on you and so it can be part of the CTC.
And the same goes with EPF as well the company is making contribution on your behalf.
If you leave the company, that money is not kept by your company. It is yours to withdraw
or transfer. So it is a legitimate cost to company. Just because it does not translate into
money in hand every month does not mean it is not a cost for the company.
Finally, every company adds different components to CTC. It is the responsibility of the
candidate to check what is the Fixed component and whats the Variable component in the
salary. You can ask in the interview and the person can highlight the fixed components and
variable/one-time components.
If you feel the Performance-linked component is very high (Id call my CTC unacceptable if
more than 20% of it is performance-linked component), feel free to discuss, negotiate, or at
least understand how the performance is judged. If it is subject to your managers ratings
alone, you have little to count on that money!
However, if you are saying that you saw something written clearly as one-time bonus, or
stock options and still went ahead and divided those amounts by 12 to secure your place
on Cloud nine, I am not sure if you should really call yourself an employable candidate!!!
Finally, as you grow in terms of your position in the company, your pay becomes less fixed
and more performance-linked. I work with Hewlett-Packard. My CEO, Meg took $1 as her
ANNUAL salary for a couple of years since she joined HP as she was determined to turn
around the company. However, that does not mean HP did not incur any other costs, or pay
her based on her performance. Heres a breakup of what she actually received in 2013
$260,000 Incentive Pay
$4,300,000 Stock
$12,700,000 Stock Options
$275,300 Perks (including personal use of corporate aircraft valued at more than
$250,000)
As you can see, Meg using company aircraft for her personal use was also considered part
of what HP paid to her And you can see that the whole of her compensation (more or less)
is completely performance-linked. Her stocks and options are not worth much if she cannot
get the company to perform better, which would get the stick price to go up, thus making her
a handsome profit!
So why not get used to Performance-linked money from now on, and strive to earn as much
as you can Understand that everyone at your level would have more or less the similar
package and that would mean if your performance is stellar, you get to have a lions share of
the PLI component while your colleagues get less!!!
Reply
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BASIC
FEP
PF
Gratuity
Insurance benefits
Emergency Medical Fund
Annual Gross
Performance bonus
These are the components available in my Offer letter and I am confused how to calculate
the Take Home from this. I came to know that the take home is lesser in Mindtree while
since I have a 3 year gap in my career iam bound to accept this offer. Pls help ASAP.
Reply
131 Manish Chauhan March 8, 2015 at 7:17 pm
Hi Ramya
The question asked by you is beyond our scope. Its suggested that you hire an expert
on the issue and pay them for the advice.
Manish
Reply
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