We want to revise the pay structure of our seniors. We already have basic components like LTA, mediclaim, and their monthly and annual reimbursement. Can anyone help me with the newly added components and their correct percentage to the CTC? Your assistance would be greatly appreciated as I have the opportunity to change many more old systems in my current organization.
Thank you.
From India, Mumbai
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Thank you.
From India, Mumbai
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For Senior Management Employees Only
Perquisites and Guidelines
- **Rent-Free Accommodation**
Owned or Managed by the Employer (Includes Flat, Hotel, Farmhouse, Guest House, Caravan, etc.)
- **Income Tax Effect:** Taxable perquisite – The value of rent-free accommodation considered taxable for the period of house occupied is either of the following:
- **For Private Sector Employees:** 10% of Salary (for metro cities) or 7.5% for non-metro cities + Excess of Fair Rent Value (market rent) over 60% of salary (i.e., Market Rent – 60% of salary) = Total taxable value of rent-free accommodation.
- **For PSU and Semi-Govt. Employees:** 10% of Salary (for metro cities) or 7.5% for non-metro cities OR Fair Rent Value, whichever is lower, is taxable.
The term 'Salary' will include the total of the following: Basic, All Allowances & Reimbursements (excluding Medical Reimbursement), Bonus received, any commission, fees, etc. Fair Rent – Market Rent or Municipal Valuation of Rent, whichever is higher.
- **Car (For Personal Use)**
Owned by the Employer
- **Income Tax Effect:** Taxable Value will include the following – Actual Running & Maintenance expenditure incurred by the employer + Driver's Salary + Depreciation – any amount charged by the employer to the employee for personal use of the car.
- **Employee Stock Option Plan**
Employees exercise their option by buying out the shares 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 the following two schemes. The policy covers may be kept between the range of Rs.100,000 to Rs.500,000 depending upon the hierarchies or grade system in your company.
- Personal Accident Insurance Scheme (for employee only)
- Medical Insurance Scheme (For employee & dependents which can be spouse, first two children, parents or in-laws (either of them), etc. Some companies do not cover parents/in-laws; some insurance companies do. Please check this with them before taking a cover for your employees.
- Maternity Benefits – Some companies have their own maternity benefit schemes for their female employees, and some companies don't have, rather they depend on Maternity Benefit Act provisions. However, it is not necessary; you can choose either approach. Having the company's own scheme helps a lot because under the Act, government procedures to claim benefits are always tedious.
Variable Pay / Performance Pay / Incentives
This is not a salary. The objective of this is purely different than salary, i.e., you perform; we pay you accordingly. Whereas the 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 a regular or fixed amount. Hence it should always be kept out of the main Salary Structure. Although most companies prefer to include this figure in CTC, it gives a vague and unrealistic impression of Salary. Because individuals' expectations from Salary as terminology differ from Incentives/Variables, etc.
Rather, an independent and attractive Variable Pay or Incentive Structure can be designed and should be a part of the Rewards & Awards Strategy of the organization.
Following parameters can be kept in mind:
- 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 100,000, where Rs.0 is for poor and negative performance and 100,000 is for Outstanding performers. Similarly, employees falling in between can be given percentages 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.30,000/- to 50,000/-) Good employees can be given between 50% to 70% (i.e., Rs.50,000/- to Rs.70,000/-) and Excellent Rated employees can be given between 70-90% (i.e., Rs.70,000 to Rs.90,000/-), etc.
- Another approach can be a 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.500,000/- and his Basic + Allowances comes to 375,000, then his eligibility for incentives comes out to be 30%x375,000=112,500 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 112,500 as incentives.
For more details, you can get in touch at [Email Removed For Privacy Reasons].
Regards,
DEV
From India, Mumbai
Acknowledge(1)
Amend(0)
14Perquisites and Guidelines
- **Rent-Free Accommodation**
Owned or Managed by the Employer (Includes Flat, Hotel, Farmhouse, Guest House, Caravan, etc.)
- **Income Tax Effect:** Taxable perquisite – The value of rent-free accommodation considered taxable for the period of house occupied is either of the following:
- **For Private Sector Employees:** 10% of Salary (for metro cities) or 7.5% for non-metro cities + Excess of Fair Rent Value (market rent) over 60% of salary (i.e., Market Rent – 60% of salary) = Total taxable value of rent-free accommodation.
- **For PSU and Semi-Govt. Employees:** 10% of Salary (for metro cities) or 7.5% for non-metro cities OR Fair Rent Value, whichever is lower, is taxable.
The term 'Salary' will include the total of the following: Basic, All Allowances & Reimbursements (excluding Medical Reimbursement), Bonus received, any commission, fees, etc. Fair Rent – Market Rent or Municipal Valuation of Rent, whichever is higher.
- **Car (For Personal Use)**
Owned by the Employer
- **Income Tax Effect:** Taxable Value will include the following – Actual Running & Maintenance expenditure incurred by the employer + Driver's Salary + Depreciation – any amount charged by the employer to the employee for personal use of the car.
- **Employee Stock Option Plan**
Employees exercise their option by buying out the shares 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 the following two schemes. The policy covers may be kept between the range of Rs.100,000 to Rs.500,000 depending upon the hierarchies or grade system in your company.
- Personal Accident Insurance Scheme (for employee only)
- Medical Insurance Scheme (For employee & dependents which can be spouse, first two children, parents or in-laws (either of them), etc. Some companies do not cover parents/in-laws; some insurance companies do. Please check this with them before taking a cover for your employees.
- Maternity Benefits – Some companies have their own maternity benefit schemes for their female employees, and some companies don't have, rather they depend on Maternity Benefit Act provisions. However, it is not necessary; you can choose either approach. Having the company's own scheme helps a lot because under the Act, government procedures to claim benefits are always tedious.
Variable Pay / Performance Pay / Incentives
This is not a salary. The objective of this is purely different than salary, i.e., you perform; we pay you accordingly. Whereas the 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 a regular or fixed amount. Hence it should always be kept out of the main Salary Structure. Although most companies prefer to include this figure in CTC, it gives a vague and unrealistic impression of Salary. Because individuals' expectations from Salary as terminology differ from Incentives/Variables, etc.
Rather, an independent and attractive Variable Pay or Incentive Structure can be designed and should be a part of the Rewards & Awards Strategy of the organization.
Following parameters can be kept in mind:
- 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 100,000, where Rs.0 is for poor and negative performance and 100,000 is for Outstanding performers. Similarly, employees falling in between can be given percentages 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.30,000/- to 50,000/-) Good employees can be given between 50% to 70% (i.e., Rs.50,000/- to Rs.70,000/-) and Excellent Rated employees can be given between 70-90% (i.e., Rs.70,000 to Rs.90,000/-), etc.
- Another approach can be a 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.500,000/- and his Basic + Allowances comes to 375,000, then his eligibility for incentives comes out to be 30%x375,000=112,500 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 112,500 as incentives.
For more details, you can get in touch at [Email Removed For Privacy Reasons].
Regards,
DEV
From India, Mumbai
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Compensation Structure.ppt
Training e-Brochure for Senior Management.doc