22 The Economic Times Wealth, March 7, 2011
Jobs & Income
PAY PACKAGE
What’s your
real salary?
The high compensation promised by your employer often
whittles down to a minuscule take-home pay. Here’s what you
should know before you negotiate your salary.
PRIYA KAPOOR & KHYATI DHARAMSI
A
n annual salary of `30 lakh
sounds fantastic, doesn’t it?
Come placement time at top
business schools and such
astronomical salaries seem the
norm. Average salaries are quoted in seven
figures and the highest pay package is worth
a crore. All this attracts students in droves to
pursue management courses, their belief
cemented by the fact that the money they
invest in fees will be recouped in a couple of
years. So why does it take most of them
longer to repay the education loan? Simply
because the actual salaries they take home
are much less than those quoted to them.
Dushan Kapoor (name changed) was
offered the post of an HR executive at an
annual salary of `2.75 lakh. He expected his
take-home pay to be about `20,000 after
deducting tax and the Provident Fund contri-
bution. However, his happiness was
shortlived when he saw the salary break-up a
few days later. “The company had included
accommodation, telephone reimbursement
and meal coupons in the package, which
reduced my take-home pay to `15,000 a
month,” he says.
The salary you actually take home
Don’t be envious if you know someone who
quotes his cost-to-company (CTC) as `1 lakh a
month. In all probability, he’s pocketing only
`70,000 (see Decoding your first salary slip).
“CTC is an expected income, but how much
you get is subjective and is known at the end
of the year. This is because a large chunk is
the performance-linked bonus,” says Sunil
Goel, CEO, Global Hunt, a headhunting firm.
“The bonus usually comprises 10-20% of
the CTC, but what you get in hand is 65-75% of
the figure that was quoted,” says Kris Laksh-
mikanth, managing director at HR consultan-
cy firm, The Headhunters India.
Delhi-based Kamal Singh (name changed)
has recently got an offer of `7.5 lakh a year
through campus placement. “My annual vari-
able pay is `1.5 lakh,” she says. But does she
have any clue about her take-home salary? “I
am not very sure of that. I think there will be a
tax outgo, but I don’t know if there are other
deductions,” she admits.
Singh should check with her prospective
employer as various factors included in the
CTC are not given in monetary form. For
instance, employers may provide health and
life insurance covers to employees and show
RAJ
DECODING YOUR FIRST SALARY SLIP
Components Salary promised How it is computed Salary received
Basic 5,20,000. On the basis of the number of days you have worked. 5,20,000
HRA 2,60,000 Tax-free if rent receipts are given. 2,60,000
Transport 9,600 Tax-free up to this limit. 9,600
LTA 18,000 Not paid in the first year as no privilege leave is given. 0
Medical allowance 15,000 Tax-free up to this limit if bills are provided. 15,000
Overtime allowance 30,000 Given if you work on holidays, which you may not. 0
Not added to monthly packet; not usable at all places.
Meal coupons 24,000 0
Training 26,988 No monetary benefit. 0
Retention bonus 65,000 You will get this at the end of at least two years. 0
Mobile phone 12,000 Paid only till the extent of the bill amount. 12,000
Conveyance 96,000 Will not be given if you do not claim it. 96,000
Variable pay 1,30,000 Subject to personal, department and company performance. 52,000*
Mediclaim premium 6,000 To be claimed if hospitalised; subject to policy conditions. 0
PF 62,400 Your equivalent contribution is deducted from salary; paid upon retirement -62,400
Gratuity 25,012 Paid only only after completion of five years 0
Total take-home pay (before tax) 9,02,200
Total CTC (before tax) 13,00,000
{*Assuming 40% is paid} All figures in `.
the premiums paid by them as a part of your at least five years. The retention bonus can However, there is no uniformity in the
total salary. Other factors that bloat your CTC sometimes be as high as 15% of the CTC. dissemination of placement information by
are the expenses incurred on training you, However, it is paid only after 2-3 years of B-schools. While some take into account the
subsidised meals provided in the cafeteria, working with the company. fixed component, others quote the CTC
transport facility, etc. Your Provident Fund amount is the only figures. The good news is that this process will
In the case of international job offers, there payment that is guaranteed no matter how soon become more transparent. IIM
are other issues that you may have to deal many years you work or with whom. While a Ahmedabad has recently come out with a
with. Delhi-based Bhaskar Khanna got an offer 12% deduction from your basic salary placement standard report, wherein the
of 50,000 dirham from a Dubai-based compa- towards Provident Fund is mandatory, recruiters will have to mention all the heads
ny, but he rejected it. “Initially, the offer companies have begun including the under which the salary will be paid. Salary
seemed attractive, but when I enquired about matching contribution to be made by them as offers will be checked by external auditors.
the cost of living there, I found that the rental a part of the CTC. “This will help aspiring students make a more
and transportation costs were too high. I Why is the CTC inflated? astute choice. They will compare offers based
would have barely managed to save anything,” One of the reasons companies highlight a on roles, not on inflated CTCs,” says Gabula.
says Kapoor. An international offer should also high CTC package is that the top business “This will ensure that there are no nasty
be evaluated in terms of the economic schools do not allow them to enter the surprises for the students,” says Saral
conditions and tax structure in that country. campuses below a specific salary offer as Mukherjee, professor, IIM Ahmedabad.
What you may get if you stick around most aspiring students often choose a school Before deciding on an institute, aspirants
Funds under some category heads can be based only on this factor. “Many students should find out the average salary (after
availed of after a certain period of time. These have to take an education loan to pursue an taking into account various deductions),
include gratuity and retention bonus. The MBA degree. So the salary they get after domestic and international salary offers as
4.81% contribution made towards gratuity is completing the course helps determine well as the lowest and highest package. If
often included in the CTC, but you will only whether it is viable to invest two years of one’s your aim is to join a specific industry ask for a
get it if you work with the same employer for life in it,” says an industry insider. list of offers in that domain.