Hi Aj,
My reply in bold below :
Please advise if the Gross Salary is a variable? Is not the company supposed to pay the exact amount of Gross salary as mentioned in the joining letter irrespective of any note mentioned. - Gross salary can only vary from the appointment letter only in few cases like difference in pay days, payment of incentive or payment of any other allowance which is not a regular feature of the monthly salary otherwise noway it can vary. Absolutely true. Every employee must get his salary as mentioned in his/her appointment letter.
The problem with the above mentioned process is that you might end up with a lot of disgruntled employees since they probably have been used to a pay with 20% and if the company is not able to generate enough profits it might be reduced to 8.33%, also when actually does the balancing act happen? - It is also mentioned in the act that the bonus should be paid as per the profitabality of the company in the concerned accounting year. However, if an employer wishes and can pay higher amount no authority would object to it.
Further, precisely to avaoid this balancing act, I have suggested to keep bonus component @ 20% of basic which is the maximum statutory limit, so that no authority would verify it or check your balance sheets for profitability if you happen to pay it less as compared to previous years. Anyways, we are making it as a part of the CTC, hence no liability for future.
Also when introducing Bonus as a part of CTC, Isnt it better to put 8.33% and then during appraisal according to the performance of the employee a higher ratio to be paid immediately after the appraisal, cause by then generally the company has an idea of what its profits are gonna be, In case the company is hit by a bad year then they have the option of not paying more bonus. - I believe first part of this question is answered above. I do understand that the employees do expect some bonus/incentive at the time if Diwali, which in our case, has already been paid along with their monthly salary. To keep employees happy & satisfied, we can pay them an amount naming it as 'Diwali Bonus" which would not have any legal implications as statutory bonus has, hence amount can be freezed as a fixed sum for all, as the management may decide. I am sure this would very well fit into their budget too.
Also if Bonus is not part of Gross then it can be paid at a 60% -40% ratio on a half yearly basis, this might also help in the retention of employees. - Honestly speaking, I don't think amount of bonus can be used as a retention tool. However, the way it is paid or its frequency or time of payment may induce people to stay back. In my opinion the two most important factors due to which an employee stick to an organization is Primarily 'Culture' clubbed with growth opportunities in his/her current job role.
Hope you would find it as per your expectation.