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Higher CTC doesn't always mean higher pay

Khyati Dharamsi & Vivek Kaul, ET Bureau Dec 21, 2010, 02.55pm IST
Tags:
salary CTC|
job offer|
campus recruitment
The truth is most professionals teach you strategies to
employ during a job interview, not after. The result: unlike
experienced hands, first-time job seekers fail to notice
certain ruses companies employ to make an offer look
"great".
Like many others, 23-year-old Ranbir Singh, too, realised
his mistake late. He went for the highest cost-to-company
(CTC) package. Singh, then a last-semester MBA student
from a Hyderabad-based business school, had no choice but
to rue his decision.
It is that time of the year again when corporates actively hunt for talent on campuses. So it is time to be
on your guard. You had better scrutinise all offers before accepting the best one, and the bottom line is:
higher CTC doesn't always mean higher pay.
Things to remember
Retention and performance bonus: If the retention bonus is huge (say 10-15% of the CTC) and will be
paid only after 2-3 years, you need to consider what you could have done with that money. A Rs 2.5
lakh retention bonus coming to you after two years will add more than Rs 10,000 to the monthly CTC.
But after two years, the value of that Rs 10,000 will be barely Rs 8,500 (considering 8% inflation). Says
E Balaji, CEO at Ma Foi Management Consultants: "It is important to understand that there are deferred
payments such as these that cannot be part of your take-home (salary)."
As regards performance bonus, don't forget that it doesn't depend on your performance, but that of the
company. "There are years when you may not get the performance bonus. But in some years you may
get more than 100%," says Kris Lakshmikanth, managing director at The Headhunters India, an HR
consultancy firm. Also, one must remember that all kinds of bonus are taxable.
Variable take-home: Depending on the industry and your job profile, the variable component of the

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salary will vary from 10-15% to as high as 50%. Bargain for keeping it as low as possible.
Insurance and medical facilities: Most employers provide health insurance cover to employees and their
dependents. Some also provide life insurance free of cost. The premium amounts paid for such
insurance by the company on your behalf can be part of your total salary. Many companies also have
in-house facilities offering "free" medical care to employees. A per-employee cost for such facilities
may also be included in your CTC pay package. Your CTC ends up looking fatter.
Stock options: Companies may offer Employee Stock Option Plans (Esops) to new hires. "If shares are
allotted or transferred on or after April 1 2009, the same will be taxed as perquisite in employees'
hands," says Sandeep Shanbhag, director, Wonderland Consultants, a tax and financial planning firm.
What it means is that the employee will have to pay some tax the moment Esops are alloted to him.
However, if you are lucky enough, you might end up a dollar millionaire.
Gratuity: Around 4.16% of the CTC is usually allocated towards gratuity which is payable after an
employee quits an organisation after five years. Since most people change jobs before that, gratuity
largely remains unclaimed. But lately, some companies have started paying out accumulated gratuity
even when employees leave before five years, though the entire amount is taxed.
Subsidised loans: Most banking and finance companies offer loans at subsidised interest rates to
employees. Some companies, however, include interest on the loan in the total pay package. For
example, a company may offer an employee a Rs 12 lakh per annum salary of which Rs 2 lakh will be
the "interest" on a Rs 20 lakh loan. If you don't avail of the loan, you gain nothing. So choose your
benefits if your employer is ready to offer a "flexible" package.
Transport: Often, employers provide free transport to their employees (from their place of work to the
job location). The cost of such transportation can be added to your CTC package. The point is it is
crucial to know perks that form a part of your CTC.
Subsidised meals: Corporates run cafeterias that serve subsidised food. In some companies, such
subsidy could be part of your CTC package. Again, choose benefits that suit you.
Training costs: A few MNCs in India have excellent training programmes. But the cost of training could
be part of your total pay. "The actual costs of training an employee can't be quantified and how can that
be a part of the CTC?" asks Balaji.
Office space rent: Shocked? There are companies, especially large investment banks, which include
office space rent in your CTC package! If you know of this beforehand, you may want to opt for another
offer with a lower CTC package (but a higher take-home pay).
Remember that you have won only half the battle by impressing your employers with your
job-interview skills honed under a pro. The rest lies in cutting through the clutter of HR jargon to know
which job pays the most.
(Names have been changed to protect identities, as these people continue to work at companies that
hired them)
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