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Compensation is the

total amount of the

monetary and non-
monetary pay provided
to an employee by an
employer in return for
work performed as
Compensation also
includes payments such
as bonuses, profit
sharing, overtime pay,
recognition rewards and
checks, and sales
The ultimate goal of compensation planning is to
reward and encourage employees to do well in their
jobs. Some of the objectives are sought to be
achieved through effective compensation planning

Entice the employees
Retain the best talent
Ensure equity
Reward new ideas and
Cost control

Classification of Salary Components
Compensation Structure
Sample Salary Component Structure

Fixed Salary Details
Basic Salary 40% to 50% of CTC
House Rent Allowance
50% of Basic Salary for Metro Cities
(Chennai, Mumbai, Delhi and Kolkata)

40% of Basic Salary for Other Cities
Conveyance / Transport Allowance
Rs. 800 per month (for handicapped Rs. 1600 per
Child Education Allowance
Rs. 100 per child/per month (maximum of two
Other / Special Allowance As per Section 10(14) of Income Tax act.

Non-Monetary Benefits / Perks Details
Company Car
As per company car policy to senior management
Accommodations Company provided accommodations
Fixed Assets Fixed Assets / Furniture & Fixtures
Employee Stock Option Plan (ESOP) As per company ESOP plan
Food Coupons (Rs. 1100pm), Gas, Electricity &
Helper , House Maid, Gardener, etc.

Reimbursement Components Details
Medical Rs. 15000 p.a. (for self, spouse and dependants)
Leave Travel Allowance (LTA)
One month basic salary
Two claims in a block of 4 years (current block 2014
- 2017)
As per company compensation policy Rs. 2000
4000 p.m.
Vehicle Maintenance/Petrol
Employer car (fuel & maintenance expenses met by
No limit Up to Rs.10000 p.m.
Employee car (fuel & maintenance expenses met by
a. Rs. 1800p.m. for small car (with 1.6cc)
b. Rs. 2400 p.m. for big car (with above 1.6 cc)
Driver Recommended for senior management staff

Retirement Benefits Details
Company Contribution to Provident Fund 12% of PF wage
Gratuity 4.81% of basic p.m.
Superannuation As per company policy / trust by-laws
Pension Fund
As per company policy or New Pension Scheme
Group Mediclaim Insurance
Group Life Insurance, etc.
Employer Contribution to Employees State
Insurance (ESI)
4.75% of ESI wage
Ensure that the salary components are in compliance
with income tax rules and labour laws
Refer to minimum wages act-state rules for any
specific segment of workers
Union employees salary structures are governed by
Union agreement/settlement
Ensure that the special/other/personal allowance
is lesser than the other components in salary

To get detailed information about Designing a Simple
Compensation Structure in video form please click the link