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I am working with an Start-up IT company and i am required to draft a policy for introducing Retention Bonus as a part of deferred pay in the CTC.
Am looking for a basic understanding on the points to consider in the policy or general outlines/draft of a policy.
Would appreciate guidance and advice on how to go about this..

Retention Scheme

Objective: To retain the key contributors of the Company and motivate them by ensuring a retention bonus for their commitment towards the Company.

Purpose: In the past few years the attrition rate in “Company’s Name” has been very high. A lot of “Company’s Name” Employees have been poached by competitors.

The recent Employee opinion survey also highlighted the employee concern towards the low level of benefits at “Company’s Name” when compared to other Indian companies

This scheme will aid in the retention of certain key Employees of “Company’s Name” by providing a retention Bonus in consideration of their continued employment.

Retention scheme will prove to be an attraction for employees to continue in the organization longer and bring stability to “Company’s Name” by developing local talents in the long term.

Eligible Employees: all “Company’s Name”employees

Scheme Rules:

This scheme works like the “Super Annuation Scheme”: It will encourage the selected employees to remain with the company for more than 2 years starting January 2010, up to 6 years.

- The retention bonus will be payable from 2012 (2years) up to 2015 (6 years)

- The total amount of the bonus over the 6 years is: 6 months of 2010 basic salary

- This amount will be paid in 3 installments, as described in the table below, as long as the selected beneficiary remains in the employment of the company

- Employee will not be entitled to pro –rata payment if he/she leaves the organization before the due date of the retention scheme.

- The retention bonus will be paid in lump sum along with the Bonus payment in that particular year.

- No retention bonus will be paid in the event of dissolution or liquidation of the Company.

- Upon the management decision and in agreement with regional HR, more employees will benefit from the scheme in the future

Effective Date 1st January 2010

Level of Retention 6 months 2010 Basic Salary, equivalent to 50% of Annual Basic pay.

Payment Arrangement Payment will be made in 6 years:

1st Year – Nil

2nd Year – 10%

3rd Year – Nil

4th Year – 40%

5th Year – Nil

6th Year – 50%

Project Cost: Please see below and attached excel file

Participants: No. of employees

In KEuros

Year Accrual Payment







Just see if it can help you to formulate the same..

Pls note that Retention Bonus/allowance attracts P.F.
This is from e-how HR site.
HR Retention Policies
By Rowena Odina, eHow Contributor
Every organization wants to create an environment where valuable employees are motivated to stay and contribute. A retention policy states management's commitment to implement strategies that keep employees satisfied, loyal and working to their full potential.
Although benefits and financial compensation are important for retention, organizations should look at other factors, such as management climate, supervisor relationship, company culture, development opportunities, work/life balance, training and employee recognition. The best retention strategies align employee motivations with company goals.

You can keep 5% of basic salary as the retention amount. You can give this amount back to employee after successful completion of 2 years without any interest.
1. employ RSI instrument: there are 9 career anchors (wealth/ control/ meaning for life/ expertise/ autonomy/ creativity/ security/ social affiliation/ forgot the 9th one )

so we need to design a system which rewards the top 3 career anchors of each individual..

2. a good example which we have implemented at one of my prev organisations:

for the first 5 years, one gets gratuity @15 days .6th year onwards, it becomes @1month..

this makes it substantial...

3.ESOPS come into picture

4. sabbaticals for education/ etc

5. in china employers understand the need of housing and there is a fund to specifically cater to that (just like Pf n ESI).. it is 300-500 times the monthly salary..

6. in US we have a scheme specifically to cater to seasonal industries.. when the person returns to work in the next season, the difference between his salary n social security is compensated partially by the employer thus guaranteeing return..

7. we have 100% sponsoring of children education

8. introduce competence mapping and succession planning, this will stand you in good stead

9. encourage employees to become entrepreneurs (i have helped >10 people start their own business)

10. if people are exploiting ur company as a stepping stone or a talent nursery, convert it into a business opportunity..

(several Companies entered into voice n accent/ customer service training to cater to bpos... another good example is paid project trainings ...)

the list is endless..

How “Employer - Employee Scheme” can be used as
Employees Retention Tool & utilizing Tax Benefits
for the contribution made in this scheme by Companies before 31.03.2019 ?
One of the key worries of any organization is how to retain employees, more so the deserving employees. Not just that it is a setback but also the company has to start afresh with hiring new talent, grooming and nurturing them. This kind of turnover is extremely expensive. By some estimates, it can cost an employer double an employee’s salary to replace them when they quit. That cost varies across different industries, but for some employers, it can be even higher.
According to a collection of recent surveys on employee retention, only 24% of “Generation X” employees say that financial stability motivates them to stay in a job. Yet 56% of employees say that health care and insurance concerns keeps them in their job. Benefits that are actually beneficial matter. Money matters. What you offer your employees in this area must be comparable to other businesses in your industry in your region.
Here I am giving you brief of “Employer – Employee Scheme”. This Scheme can be used by you as an important part of “Effective Employee Retention Strategies” your organization.
Employer - Employee Scheme structure is one where the company buys Scheme but the beneficiary is an employee. It is a benefit given by the company to selected talented employees. In today’s context this is particularly relevant because attracting and retaining employees is so much more difficult.
Features of the Scheme :-
The employer-employee insurance plan works as a reward program for the employees.
Provide this as an additional benefit to the employee in order to retain the services of the Employee
Make provision as a welfare measure for the dependents of the employee, in case of premature death or old age provision for employee himself.
Provide this as an employer sponsored fringe benefit which is a valuable part of the compensation
We have administered the above plan in various organization in all sectors of Indian Economy on receipt of their Management request and If you wish to know details like:-
1. Who can be covered under Employer - Employee Scheme?
2. How can companies administer this scheme and avail of the tax benefits?
3. Benefits to Employer,
4. Benefits to Employee,
5. Employer - Employee Scheme -Interpretation of Tax Implications.
We may also contacted for the structuring of other Retention Schemes, Gratuity Trust Fund Set up, Group Health Insurances, Group Terms Insurances, Group Annuity Plans, Property/Fire Insurances and investment in 100% risk Free Government of India Bonds (GOI Bonds)
Tikaram Chaudhary
Gratuity & Gratuity Trust Fund Consultant
R 11, F/F, Vikas Nagar Uttam Nagar, New Delhi - 110059
Mobile Number - 9211637063
Email ID -
Blog :
All Consultancy Services provided by us are subject to terms & conditions will be stated when a consultation job is accepted.

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