Professional Documents
Culture Documents
Compensation Rules and Design Guidelines
Compensation Rules and Design Guidelines
For example.
Basic Rs.20000/-
HRA Rs.10000/-
Actual Rent Rs.8000/-
Excess of actual rent paid over 10% of Basic
(10%x20000 – 8000) Rs.6000
Hence max exemption allowed is lowest i.e. Rs.6000/-
subject to Rent Receipts of Rs.6000/- only
Transport Allowance Supposed to be conveyance allowance meant for Rs.800/- (max)
transportation between office and residence only.
Employee Stock Employee exercises his option by buying out the shares
Option Plan during the exercise period however tax liability occurs
only when an employee sells the shares on the value of
sale made under the Capital Gains head of income.
OTHER BENEFITS OUT OF CTC STRUCTURE BUT STILL FORM PART OF COMPENSATION
Insurance Schemes – employees can be covered under following two schemes. The policy covers may be
kept between the range of Rs.100000 to Rs.500000/- depending upon the hierarchies or grade system in
your company.
This is not a salary. The objective of this is purely different than salary i.e. you perform; we pay you
accordingly. Whereas objective of Salary is to ‘Regularly’ compensate an employee with a ‘Regular’ figure
against the services extended by him towards the organization. Hence there is no Performance
consideration in Salary or CTC, so there is no logic to include this in CTC structure. VP is purely
performance driven and is not regular or fixed amount. Hence it should always be kept out of main Salary
Structure. Although most of the companies prefer to include this figure in CTC however it gives vague and
unrealistic impression of Salary. Because individual’s expectations from Salary as terminology differs than
Incentives/ Variables etc
Rather an independent and attractive Variable Pay or Incentive Structure can be designed and should be a
part of Rewards & Awards Strategy of the organization.
It can be Random figures with broad ranges depending on the Position, Grade, Designation of the
employees. For example if a company has Grades A, B, C, D, E, F then we can design incentive ranges like
for Grade A, Incentives can be within the range of 0 to 100000, where Rs.0 is for poor and negative
performance and 100000 is for Outstanding performers. Similarly employees falling in between can be given
%ages of this range. For example after Poor ratings, you can have Average or Good or Excellent Rated
employees. For them guidelines could be; this year average employees would get 30%-50% (i.e. Rs.30000/-
to 50000/-) Good employees can be given between 50% to 70% (i.e. Rs.50000/- to Rs.70000/- and
Excellent Rated employees can be given between 70-90% (i.e. Rs.70000 to Rs.90000/-) etc.
Another approach can be percentage of CTC can be given as Incentives. It can be 10%, 20% or 30% of
Monthly Salary or Basic + Allowances as the case may be. For example if you decide to keep 30% of Basic
+ Allowances as Variable Pay or Performance Incentives, you can further define eligibility on the basis of
performance ratings as follows. If someone’s CTC is Rs.500000/- and his Basic + Allowances comes to
375000 then his eligibility for incentives comes out to be 30%x375000=112500 i.e. the 100 % incentives for
Outstanding performance. However if he performs at ‘Good’ Rating, he may be given say anywhere
between 50-70% of 112500 as incentives.
Note:
You can also choose how you would disburse the amounts of incentives.
In my opinion best will be to include incentive amount in the monthly salary of employee for next financial
year…. Or some companies disburse it quarterly, half yearly or yearly on a lump sum basis. The decision
can be based on your intentions whether you would like to give a lump sum big amount in the hands of an
employee so that he can realize his big personal aspirations at one go, or you can choose to include this in
monthly salary so that employees’ monthly income inflates regularly.
MONTHLY ANNUALLY
SALARY COMPONENT Amount (Rs.) Amount (Rs.)
Basic Rs.3500 (min)
HRA 50% Basic (Metro cities) 40% Basic (Non Metro)
Transport Allowance Rs.800 (max)
Children’s Education Allowance Rs.200 (max)
Special Allowance Balancing Figure
Medical Reimbursements Rs.1250 (max)
Food Coupons Rs.1000 (max)
TOTAL MONTHLY SALARY
Net Take Home Total Monthly Salary – PF – Profession Tax
Retrial Components
Provident Fund (Employer. 13.75% Basic
Contr.)
Gratuity (15 days basic) 15 days Basic per anum
Annual Components
Leave Travel Allowance No Limit
Gift Vouchers Rs.5000 (max)
ANNUAL C.T.C.
OTHER BENEFITS
Personal Accident Insurance Scheme – Rs.200000/-
Medical Insurance Scheme – Rs.200000/-