Compensation has been an extremely important issue for both, the employer and employee. This is because money is crucial incentive and directly or indirectly related with fulfillment of all human needs. Employees sell their hands and brain in order to fulfill their primary needs and employers hire them to achieve their organizational objectives. Therefore, the employer’s and employee’s perspective vary on matters concerning compensation.

CollegeKhabar try to explore what all important concern a fresh recruit has in his mind and we try to get some answers. We approach Prof B.D. Singh (Senior Professor, HR at IMT Ghaziabad, former Director -Personnel and Marketing, NALCO) to seek some of these answers. (For detail profile of Prof Singh please visit: http://www.imt.edu/page.asp?pageid=faculty_top.asp?option=Core%20Faculty )

Prof Singh explain that compensation directly influences key outcomes like job satisfaction, attraction, retention, performance, skill acquisition, co-operation, and flexibility, etc. While employer’s objective is concerned with primarily productivity, the employee’s emphasis may be on higher compensation to offset their increased cost of living and perhaps the price his skill will fetch in the competitive job market.

“The compensation should be adequate, equitable, balanced, cost effective, secure, incentive providing and acceptable to the employer”, says Prof Singh.

Almost all companies link their pay with performance and there are many components attach to it. Payment is usually divided in fixed pay + benefits. Most of students are confused in understanding these benefits and are unaware of what all benefits linked with pay beside fixed part.

“Pensions, Company car & fuel (or traveling allowance), work related computers, accommodation (if not then housing allowances), low interest loans and mortgages, Childcare provisions, discount on company services and products, Enhance leave, Sick pay, Health insurance and Life insurance are some of such benefits”, says Prof. Singh.

“These packages are under scrutiny of – The factories Act, 1948, The Contract labour act, 1970, The employees’ state insurance act, 1948, Provident funds and miscelleous act, 1952,  The maternity benefit act, 1961, The payment of gratuity act, 1972 and many more”, explain Prof Singh. He added employees has every right to look for best remuneration packages available in industry and employer are forced to equitable compensation in regards to retain talent.

We got many request to explain how to read CTCs offered by companies. CTCs can be read as:

Simply speaking, CTC is the amount that you cost your company. That is, it is the amount that the company spends – directly or indirectly – because of employing you.

Components of Cost to Company (CTC) Salary

In “Understanding components of your salary”, we saw the various components of your in-hand salary.

These are:

• Basic
• Dearness Allowance (DA)
• Incentives or bonuses
• Conveyance allowance
• House Rent Allowance (HRA)
• Medical allowance
• Leave Travel Allowance or Concession (LTA / LTC)
• Vehicle Allowance
• Telephone / Mobile Phone Allowance
• Special Allowance

All the above are a part of your in-hand salary, and therefore, are a part of your CTC pay as well.

Example: Let’s understand this using a simple example. Say your basic is Rs. 15,000 per month, DA is Rs. 10,000 per month, you get conveyance allowance of Rs. 800 per month, and you get HRA of Rs. 4,500 per month. So, your package so far is Rs. 3, 63,600 per year.

Now let’s look at some of the other components of your CTC pay – the parts that inflate your CTC package but may not be actually given to you!

Company’s contribution to Provident Fund (PF)

It is mandatory for you to contribute 12% of your basic towards provident fund (PF). Your employer makes an equal contribution (12% of your basic) to your PF account.

Reimbursements

Various reimbursements that you get from your company can also form a part of your CTC package.

This includes reimbursement of:

• Medical bills
• Phone bills
• Magazine subscriptions
• Internet Connection at Home
• Book purchases, etc.

Life Insurance and Health insurance

Most respectable employers provide free health insurance cover to their employees and their dependents. Some companies also provide life insurance for their employees free of cost.

The premium amounts paid for such insurance on your behalf can be included in your CTC salary.

Medical Facilities

Many companies have in-house health centers, hospitals or other health care facilities where medical care is provided free of cost to employees.

Transport Facilities

Many companies provide free transport facility to their employees from their place of work to the job location.

The cost of such transportation can be added to your CTC package.

Subsidized Meals

Many companies run canteens or cafeterias for their employees, which provide subsidized meals to the employees. Such subsidy can be included in your cost to company package.

Some time companies too include: Office phone bill, Office space rent etc but these included on in CTCs of very highly paid professional (MBAs from IIM-A!)

Some companies take one step ahead includes not so common expenses to company also as the part of CTC like:

• The Variable Compensation
• Joining Bonus
• Paid Leaves as a part of CTC

So next time when you see that Company A is offering whooping 10+ as CTC. Don’t fall for it, look out for the breakup of the CTC which will give you a better idea of the reality.

A note on government salaries

We often hear people say that the salary of government employees is quite low.

Although there is truth in this, government salaries wouldn’t seem too less if we look at it from a “CTC” point of view.

When we talk about government salaries, we only talk about the “in-hand” component. But we forget that on a cost-to-company basis, it can be quite substantial.

What extras do government servants get? Here’s a sample list:

• The 12% of basic that the government deposits in their PF accounts, just like private companies
• Membership of government clubs or gymkhanas
• Free food or highly subsided food in the company mess (Eg.  In HAL it cost less than even Rs. 10 for the mail meal.)
• Free stay at various circuit houses and government guest houses
• Free telephone connection at home
• Free car with driver
• Reimbursement of newspaper bills
• Free use of libraries
• In case of defense personnel (Army / Navy / Air Force), a huge subsidy on items bought from their “canteens” (like groceries, appliances, etc.)

When these things are taken into account and salaries of government employees is considered on a cost to company (CTC) basis, it won’t seem too less compared to the private sector!

Eg: Indian Oil Corporation Limited

Remuneration

Minimum CTC at Grade A (Entry Level)

Sr. No. Remuneration Components Unit / % Rs. 1 Basic Pay * p.m. 23000 p.a. 276000 2 Dearness Allowance (IDA) (as on 1.7.09) 18.5% 51060 3 Perks & Allowances (Max. admissible upto 50% of BP) 50% 138000 4 House Rent Allowance (HRA) – for Metro 30% 82800 5 Superannuation benefits (upto max. of 30% of BP+DA) (includes PF, Gratuity, Post-retiral Medical & Pension) 30% 98118 6 Total CTC (in Rs.) – Metro city (Excluding Performance Related Pay) 645978 Rs. in lac 6.50 7 Performance Related Payments % age of BP 40% Supera(Max. admissible subject to conditions) ** 110400 8 Total (in Rs.) – Metro city (6+7) (Including Performance Related Pay) 756378 Rs. in lac 7.60 * Basic pay is provisional and under finalisation ** As per DPE guidelines of 26.11.08, Performance related pay (PRP) is to be linked to MOU rating, profit of the current year, incremental profit (i.e. increase in profit as compared to previous year), grade & individual performance of the officer. Upto 60% of the PRP will be given within the ceiling of 3% of Profit Before Tax (PBT) of current year, and 40% of PRP will come from 10% of incremental profit. The total PRP will however be limited to 5% of the year’s PBT. The performance payment shown above has been computed on notional basis in the revised Pay assuming that Corporation has achieved ‘Excellent’ rating, the officer’s performance is ‘Outstanding’, and profit of the year and incremental profit are sufficient to give full performance incentive.

Perks and Perquisites

Car purchase advance immediately after induction training – Rs. 2.65 lakh (@ nominal interest of 2.5%) Computer and furniture at home (provided by Company) House-building advance after 5 years of service – Rs. 12 lakh (@ nominal 5% interest). Insurance coverage for house is also provided at nominal 0.5% Almost unlimited medical benefits and nomination facility at best of the hospitals across the country for self and dependents Opportunity to avail of full fee reimbursement (up to Rs. 3 lakh) for part-time MBA programme at best of the institutes in India Individual performance-based incentives Life-time medical care: Post-retirement medical benefits Holiday Homes facility during service & after retirement Nominated hotels facility on tours / leave

Apart from attractive scales and perks, IndianOil provides its employees many facilities and welfare measures, which are continuously upgraded. The medical facilities extended to the employees are rated amongst the best in the country. Apart from fully equipped hospitals at refinery townships, the Corporation has also nominated hospitals at various locations to meet employee needs. Holiday homes at select locations throughout the country help employees and their families unwind.

Note: Special thanks to Prof. Singh for giving valuable information to our reader. We are also thankful to raagvamdatt.com for explaining part of CTC complexity.

(For detail profile of Prof Singh please visit: http://www.imt.edu/page.asp?pageid=faculty_top.asp?option=Core%20Faculty )