sim27 Started The Discussion:
good afternoon to all members

why employer considers the previous salary of the candidate while fixing salary package. is there any thumb rule of offering new salary on basis of previous salary.

please guide how to negotiate with employer to get maximum package.

regards to all
Posted 16th November 2010 From India, Mumbai

Conceptually, Bonus is a share in profits of the organization.
By provisions of the act itself, some employees will get covered under the act and others may not be covered.
This situation also changes as the emoluments rise over a period of time and as the government raises coverages limits under the act.

It is a fact that even if the organization makes a loss, it is obliged under the act to pay a minimum bonus of 8.33% as per stipulations of the act, to the covered employees.

These two statements will make it clear that bonus can change from time to time and from people to people depending upon the coverage status scenario.

Now, when we talk about CTC, we mean that it is the cost incurred by the employer in respect of the employee for have employed him/her. CTC is NOT the money the employee gets in in his hands every month or periodically. Organizations must confine the use of concept of CTC only for purpose of budgetting employee costs for the organization and certainly NOT as a tool to bargain salaries during recruitment. But many employers seem to do this (perhaps since there is no law against it!).

Salary is a sum of Direct payments that the employee gets in his hands whether monthly or periodically. There are certain Indirect Payments like benefits of Provident Fund, ESI etc. he will be eligible to (though not necessarily entitled to, if he does not fulfill laid down criterion) and there would be Incidentals Payments that are conditional and may accrue upon some specific results being achieved, like, Commission on sales, production incentives, attendance bonus etc.) The non monetary benefits cost to the organization but do not represent "money in hands" as far as the employee may be considered.

Therefore during salary negotiations, our approach should be to compare on "like to like" basis, as far as possible. Alternatively we must build complete CLARITY about what is being discussed, negotiated and contracted, such that there will be no room for ambiguity, confusion or misunderstanding.

Transparancy is a great strength in matters of all interpersonal relationships-especially when money is involved!

I hope your querry is answered.

November 16, 2010
Posted 16th November 2010 From India, Pune
Hi Sim,
Employer has no control over the statutory benefits like, Bonus, PF, Gratuity etc that is why they are not included in CTC ( cost to company) however, other Costs like Basic Salary, HRA, other allowances can be negotiated if Salary is not based on a fixed Package.
This is also very clearly stated by Mr. Samvedan.

All the best
Posted 17th November 2010 From India
Thank you Mr. Samdevan and Mr. Gobinda,

you have very nicely explained the logic why bonus is not considered as part of CTC.

I would like to seek your expert guidance in following incident.

In one of the company, the offer letter given to the employee wherein it mentioned ctc as 1.2 lac p.a. (Rs. 9230/- per month + yearly Bonus rs. 9230/-)

subsequently it is noticed that the company includes bonus also as part of ctc. therefore, per month salary of the employee is obviously lesser than what is expected.

after completion of an year, when the employee aplied to another company for job, the new employer did not considered the CTC which includes the bonus which affected the salary negotiation.

Dear Experts, please express your opinion in such situation.

1. whether it is fair practice of company to include bonus in CTC?
2. Is it justified that even though the in appoitment letter, CTC is mentioned rs. 1.2 lacs p.a. (including bonus) but the new employer refused to consider the written CTC letter and only considering the salary slip on which the payment to employee is lesser.

Regards to all members.
Posted 17th November 2010 From India, Mumbai

In your example you have stated a bonus of Rs. 9230/- per annum.
If the person concerned is covered under Payment of Bonus Act 1965 this bonus would represent the Minimum Bonus. It would work out Rs. 8400/- under the Act. So, the Bonus included in the salary (or CTC) of the person is NOT the Bonus under the Act. We have to know if there are any conditionalities attached for payment of this (Rs. 9230) Bonus. For this reason this amount is a part of the salary itself.

If this logic was explained to the new employer, perhaps he would have accepted it especially if the old employer had in fact paid this amount!

I think the mischief is on the part of both the employers but more of the old employer and less of the new employer who atleast is saying that he will NOT consider this element in his offer.

That is why the concept of CTC is WRONG approach to negotiate salaries.
Each employer is free to define his own CTC and there i sno law against or to standardize it.

Please follow the logic presented by me in the first reply.

Tough Luck.

November 17,2010

Posted 17th November 2010 From India, Pune
Hai All,

There is no certain defination of CTC. It varies from company to company.some companies add bonus as a part of ctc while some are not.Even some companies add gratuity ,intrest on housing loan etc as a part of CTC.Also there is no legal binding what to include or exclude in CTC .


Posted 17th November 2010 From India, Pune
Dear All,

As the definition itself is COST TO COMPANY, all costs the company incurrs/ likely to incurr in respect of the employee is considered as COST TO COMPANY.

Though you have mentioned that the salary is Rs.9230/-, there is no mention about the break up Basic + DA which is the basis for computing bonus as per act.

In my opinion if the employee is able to furnish a FORM 16 provided to him by the former employer then the suceeding employer would have taken this as an evidence.

Generally, companies verify statements made by employees. In some instances we come across employees producing the actual earnings + probable earnings (incentives). But in many cases the full incentive earning is not earned by the employee though the offer letter will indicate the maximum CTC the employee can earn. In such a case employers tend to verify the claims made by candidates and this is usual.

So it if for the candidate to prove that he has infact earned the CTC in his previous employment.

Trust the matter is clarified

Posted 17th November 2010 From India, Madras
Dear Mr Kannan,

I've this question for you. Where a Company includes a bonus(performance bonus/variable bonus) component in CTC and does not declare and distribute consistently quoting poor performance, what is the position of the employee. In the first place, this component is only the "probable earnings" so to say , for the employee and does not reflect a regular income. Is the company correct in making such offer?
Posted 18th November 2010 From India, Bangalore
Hi Sim,

1. There is no thumb rule to show or not to show Yearly Bonus in the Offer letter along with the CTC.
2. The Employer can't deny Yearly Bonus to the eligible employee even if Bonus is not mentioned in the Offer letter ( if Bonus Act is applicable to the Company where the said employee is working)
3. Convince the new Employer that in the Pay Slips of many Companies Bonus / Exgratia amount is not shown as regular incomes like, Basic, DA, VDA, HRA etc.
Hope the doubts r clarified.

All the Best
Posted 18th November 2010 From India
Dear All
The subject has been well explained by Mr Samvedan and Mr Kannan
The CTC concept varies from company to company it is very tricky. The person who is offered employed has to use his descretion and negotiate looking at the different components.

Posted 18th November 2010 From ,
Thanks to all learned members who answered to this query.

your advices will be very useful to all job seekers to understand these concets and to have a better salary negotiations.

thank you once again.
Posted 18th November 2010 From India, Mumbai
Most of the big structured companies have the concept of variable pay which depends on the performance of the individual. While these are variable, it is a fact that many can earn a handsome amount under this variable pay scheme and since this s a cost incurred by the employer for the employees, it is not wrong to include is as part of CTC.
Posted 18th November 2010 From India, Calcutta
Dear Lochanan,

While the company makes an offer of employment it indicates the CTC component which includes the fixed pay and variable pay.

For instance the CTC component of many companies include the following

Superannuation @ 15% of the Basic + DA,

Mediclaim premium paid by employer

Gratuity (Basic + DA x 15/26)

In all the above cases the employee does not get immediate benefit either in the year of joining or in the subsequent years.

This does not mean that he is unlikely to get it for ever.

I worked for an MNC and was eligible for superannuation benefits. After serving for a decade I resigned. The MNC approved Superannuation benefits to me as per its rules though I did not attain the age of 58 years. I get an annual Superannuation benefit. The capital available in my superannuation account will be paid to my nominee (wife) in the event of my death due to old age or otherwise.

Similarly companies indicate the variable pay to inform employees the maximum probable earnings. It is the responsibility of the HR department to clearly explain the CTC break up at the time of joining otherwise confusion prevails in the minds of employees and after their joining they feel they were cheated on CTC.

It is equally important that the candidate is cautious to look into the CTC offer made by his prospective employer.

To summarise there is nothing wrong on part of companies to indicate the actual pay and probable pay as CTC.

Trust matter is clarified. In case you need any further clarifications please feel free to raise them.

Posted 19th November 2010 From India, Madras

I want give a reply to first part of your query, as to why the prospective employers look at the previous CTC while negotiating the future CTC.
Pl. note that the logic behind this practice is that, generally people change jobs for improvement in Financial Status and Unless a person is offered better ctc than the previous one, he may not join.Hence this generally done to motivate motivate a person to leave present job and join new organisation.That way referring present ctc is a thumb rule.
But more important from employers, side is that the position we are trying to fill up and the pay that can be offered for that position,than the previous ctc of the person.Many times as employers we come across good candidates ,but since we can not offer an improvement over existing ctc, and disturb the internal wage structures, we can not recruit them.

Looking from individuals side, yes it is a fact that exiting ctc comes into consideration when we negotiate future ctc, as people may not offer much more that the present ctc . Rarely, we come across cases, where 100% increase over present ctc is offered.
Posted 19th November 2010 From India, Hyderabad
Dear All,

I fully agree with Mr.J.R.Kumar's view. But at the time of negotiation if we have a doubt on the claims made by the prospective candidate we seek his previous year's CTC politely and this reveals his actual earnings leave alone LTA and Medical reimbursement subject to ceiling if it is exempt from tax subject to IT rules in vogue.


Posted 20th November 2010 From India, Madras
Dear All
The points on CTC has been well explained by Mr M.V.Kannan from the beginning. Mr JR Kumar's concern is right that we come across good candidates but the companies will not be be able to hire such people due to internal salary structures.

It is true. But the present market condition, cost of living and the ambitions are high and as such the demands are also high. If the companies are unable to offer or negotiate or convince the candidates, they have to go in for such suitable candidates who would fall in line with their salary packages.

At the same time, we need not come to a conclusion that we cannot get good candidtes for lower salaries. As these days because of the specialisations available to the candidates in MBA and other courses, and cost of living in cities, they think that they can demand more. Particualrly in MNC's and foreign collaborated companies such a situation exists. Even there also, only the new incumbants willl be offered high salaries and the senior persons who are existing in the company will be stagnant with lesser salaries.

The companies and recruiters should not stop here. My strong suggestion would be to look for candidates who fall within the salary structure available in the company, Encourage candidates from outskirts of city (i.e. those who have worked in other towns far away from the cities) and groom them. If the companies cannot offer increased salaries over previous CTC, it is better to drop such candidates and be within limits or call candidates who fall within the company's salary packages. At the same time, there are good candidates who really need job and are ready to work for medium salaries.

Posted 20th November 2010 From ,
Dear Mr.Ramachandra,

You have clearly explained the manner in which we need to strike a balance between new employees and existing employees.

I fully agree with you that we should not chase candidates aspiring for higher CTC all through his career. This suggestion is because even after you try and match his salary expectations, the probability of his duration in the company is shortlived. Because, he constantly looks out for employment with higher CTC.

We have also come across candidates who get stuck with a particular company early in their career because the CTC drawn by them in relation to their young age is not affordable by many companies.

Hence, as rightly pointed out by you it would be wise to groom candidates with a relatively lesser CTC.

Thank you SIM for initiating an interesting topic.

Posted 22nd November 2010 From India, Madras
Dear Mr Kannan, Samved & All, Thank you all for the constructive inputs to think beyond the box, Regards K.Ramachandra Bangalore
Posted 22nd November 2010 From ,


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