Salary Structure - Do you really know the 'Package' ?
Posted in Human Resources Articles, Total Reads: 9384
, Published on 19 April 2011
When placements knock the doors of B Schools or other colleges, the term that is most frequently heard is ‘Package’.
How much is the Package? What’s the in-hand ? How many lakhs/millions did you say ?
These are just the few questions that you will not get tired hearing to. And when you hear the package is good(or great), the company becomes your dream company. But how many of us actually know this term called 'Package'?
There is one very important aspect these days in the pay packages especially that are offered in B-Schools – Fixed, Variable and Miscellaneous . Many people tend to ignore it. Many students are happy just knowing the total. This is exactly where companies play their game. If the package is quoted as 12 lakhs per annum by some company, students will be super impressed without caring to know at all about the various components that add up to 12 LPA.
Many times it turns out to be disappointing in the end.
The following sample pay structure was once seen in a premier B School's Placement PPT(Pre Placement Talk) by a company.
Students were happy and content seeing the total. No one was actually caring about the fine print below the table or the various components in the table. Only one concern, Whats the total 'Package' ?
If we see this structure carefully, We see that the total package is 12 LPA which looks great but when we look closer the things start to get bad. The fixed component is just 6.5 LPA which is nearly half of what was assumed in Placement PPT(This slide was passed through Quickly and 12 lpa was in bold and color). Now Other components are all with asterix or some symbol at the top. Carefully analyzing each one of them proved that these components would just be given to a select few on completing some unrealistic targets or else given when Company performs really well in some quarter or year. End of the day, the package which was projected to 12 lpa turns out to be somewhere about 7 LPA.
So when it comes to Pay Structure, a student or an employee should be 100% clear. Fixed component and variable components are the most important. If fixed is too less, then it might be a problem in Indian set up. As in India, even in Sales jobs ratio is maintained at 60:40(Fixed: Variable) whereas in US 30:70 is also acceptable.
Now sometimes during bad times, you just might end up earning the fixed. Variables are basically on percentages. Its directly proportional to the targets you achieve and also in some cases the financial situation of the company. So before you accept an offer just seeing the projected package is not enough. Go through the break up in detail. CTC(Cost to Company ) is becoming a real trap for grads as they don’t understand what it actually means. CTC basically is the total cost the company will incur if they hire an employee(you). The Salary what an employee gets is’less than or equal’ to the CTC(In majority of the cases ‘less than’). The CTC break up is very important. There are many examples in which companies have included the cost of the place where you sit, electricity spent on you, food expenses etc. Strange but true !
Variables components if defined properly can prove to be a great tool. Especially in marketing, FMCG, Sales jobs variable component plays an important role.
Companies who offer good mix of fixed and variable are not bad or they are not doing it to cheat you in future. Variable component is a kind of performance incentive which gives you more opportunity to earn than your peers.
We talked about companies only but what if the employee only doesn’t work as per expectations. So giving everything as Fixed component puts companies under the risk of easy going and underperforming employees as the employees are assured of a fixed salary irrespective of their quarterly or yearly performance.
The Variable component in the salary gives a better control to the employer over employees. It ensures better performing employees. Therefore having a decent portion of your salary as variable is not a bad thing . It will keep an employee motivated and will give him opportunity to earn more if he performs better.
But many a times companies include components like performance bonus, higher study loan etc in the package generically when in reality such cases are highly specific and are confined to a select few. But in the offer, the package is wrongly projected including all of these components. This is a problem area. As we see in the table above. A lot of things are clarified in fine print below the structure.
So it’s a responsibility of both the employee and the company to study and understand the pay structure and not project or understand it wrongly. An employee should project the package in real terms and the employee should also analyse before he takes the decision to join the company. This is the way things work. Isn't it ?
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