Performance Incentives in CTC: How Do You Justify Their Inclusion to Employees?

Can Performance Incentive be a part of CTC? Recently, one of our employees came to me arguing that Performance Incentive should not be a part of CTC, as the company does not give the complete PI; instead, a part of the PI depends on your performance. I have not responded yet, but I need your suggestions so that the objective behind considering the components of CTC can be justified.

Regards,
Kumar Manoj

Dear Manoj,

Performance incentive cannot be a part of CTC unless promised at the time of joining. It is a separate component from CTC, but this incentive has TDS, meaning tax to be deducted. If promised at the time of joining and accepted, how can one question it again? CTC is the monthly amount an employee receives - it is constant and standard. On the other hand, the performance incentive depends on performance and is not constant in nature.

Regards,
Bhavani

Dear,

Not at all, a Performance Incentive is not part of the CTC. It is extra effort done by the employee to earn an amount in addition to the agreed CTC.

Thanks

Hello Colleagues,

Performance incentive was initially devised to award an employee for doing an outstanding job. It was over and above the CTC. Nowadays, to make the package more attractive, companies have started using the CTC as Fixed + Var (as in CTC of 11L PA is 10 L + 1L Perf Based). Mostly, this is done at the Team Lead level or Middle Management Level. The reasoning behind this comes from the fact that the company expects employees at this level to go beyond what is routine job. This is included in CTC because, for a particular level of performance, the company has a cost attached to it.

When you have this Performance Bonus component attached to your CTC Structure and it is entirely performance-based, then it is directly linked to the Appraisal Ratings. If you fall under the topmost ratings, then you get a complete bonus. If you fall just short, then the company deducts some amount, maybe 90% is paid.

Because it is named as Performance Incentive/ Performance Bonus, there is nothing wrong with this kind of deduction.

And it can be added anytime in the structure without decreasing the Basic Salary.

This is what we have been following in our company for quite some time now.

Would appreciate any queries on the same.

Thanks and Regards,

Tanuj Vaid

Thank you, Bhavani and Pradeep, for sharing your valuable knowledge. I will communicate these thoughts to management and ensure the employees receive a better deal.

Regards,
Kumar Manoj 🌟

Hello,

If performance incentive is part of CTC and the company is supposed to pay the performance incentive in bulk once a year (let's consider April, for instance), what will happen if an employee wishes to leave after a few months (for example, in December)? Will the performance incentive for the period during which the employee was part of the organization be calculated and cleared during the full and final settlement, or will the company have the right to withhold the amount?

Regards,
Vijay

Dear All,

Performance bonus is part of CTC. It is a type of variable benefit the company provides, so it must be a part of CTC. For your reference, I am posting the CTC equation which is internationally used.

The whole CTC is divided into five components:

1. Annual Basic (Includes only the basic salary of the beneficiary)

2. Annual Guaranteed Cash (Includes Annual Basic + Cash Allowances)
Here Cash Allowances include: House Rent Allowance, Conveyance, Festival Bonus, Medical Reimbursement, Leave fare assistance, Others

3. Annual Total Cash (Includes Annual Guaranteed Cash + Variable Benefits)
Here Variable Benefits include: Performance Bonus, Variable pay, Sales incentive, Profit Sharing

4. Annual Total Remuneration (Includes Annual Total Cash + Non-Cash Benefits)
Here Non-cash Benefits include: Loans, Car, Petrol & Maintenance, Driver, Club Membership, Insurance Premium, Others

5. Annual Total Cost to the Company (Includes Annual Total Remuneration + Deferred Benefits)
Here Deferred Benefits include: Provident fund, Gratuity, Superannuation

If any clarification please let me know.

Thank you,
Md. Mehadi Hasan Bin Ghani
mehadi.ghani@waridtel.com.bd
Officer Human Resources
Warid Telecom International Ltd.

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Kumar Manoj asked: Can Performance Incentive be a part of CTC? Recently, one of our employees came to me arguing that Performance Incentive should not be a part of CTC as the Company does not give the complete PI, instead a part of the PI depending on your performance. I have not responded as yet, but I need your suggestions so that the objective behind considering the components of CTC can be justified.

Regards,
Kumar Manoj

Thank you for your inputs. I have a problem. Can you suggest how we can work out to provide the maximum benefit to employees for tax savings? Please let me know which benefits will be non-taxable. If the company is willing to pay FBT, what is the maximum amount that can be given as different reimbursements? If you provide me with these details, it will be helpful.

Regards,
Mahesh

Hi,

I would be keen to know if you could share the PII policy that your company has established. Only if it can be shared...

Regards, Radhika