Feeling Cheated: Can My IT Company Legally Abolish 30% of My Salary?

Dear All,

I am working with an IT company where the CTC comprises Fixed Salary and Variable Salary (30% of CTC). The company assured to pay the variable salary at the end of every year based on individual appraisal rating and company performance. Due to the recession, they deferred the payment. This year also, they did not pay the variable component, and now they have announced that variable pay is abolished. This brings down our CTC by 30% flat.

Is there any law by which employees can get this variable as part of the fixed salary? Because I feel the company has cheated its employees by abolishing the variable pay. I need your guidance at the earliest.

Regards,
Sunny

Dear Sunny,

Based on my understanding, the variable pay will not be part of CTC. If they have defined the same in the CTC, along with the quote "based on the performance," you cannot do anything. Your employer is on the safer side.

Regards,
Sundar

Any company will have its ups and downs. There will be times when the company is not able to fulfill its commitments. However, a good company is one that communicates effectively the reasons for falling in commitments. As an HR manager, you could advise your management on the need to communicate effectively why it has failed to meet its commitment and how it is going to meet that commitment in the future. This will retain the trust and credibility of the company among the employees.

Dear Sundar,

Thanks for the response. Variable pay is mentioned as part of CTC. Now, if the company abolishes the variable pay, this will result in CTC being 30% less. This will definitely affect all of us while exploring opportunities outside this company.

Isn't there anything that can be done by the employees to at least retain the CTC on paper?

Kindly advise.

Regards,
Sunny

Sir,

I worked for a registered mining company (PBS & Son) for more than two and a half years (15.11.2007 to 25.01.2010). However, they terminated me on 25.01.2010 without reason as per their appointment letter, providing payment of one month with immediate effect. No final settlement has been given to me, and the gift amount of 34 percent paid for the year 2009-2010 to all employees was not given to me (only 10 percent paid).

What can I do to receive the full gift amount, final settlement, and employment?

The CTC is just an indication of what the employee might expect to receive in terms of cash remuneration, benefits, and insurances. It is wrong to expect a "variable" component of your salary to be paid to you or to be part of the legal salary required to be paid. There is a reason they call it "variable"; it cannot be predicted, and it is not regular.

It is now your choice to stay with the company and accept the changes, hoping for an improvement when their budgets increase or to look for another job. At least if you go elsewhere, you will be smarter and not just expect variable pay to stay the same.

Regarding Variable Pay, I have one more dimension. Start-up companies will also mention a part of CTC (20-30%) as variable pay. Being a start-up company, variable pay cannot be determined based on business performance. The only basis on which an employer can give variable pay is KRA-based individual performance.

Here, the employer is at liberty to pay whatever he deems fit as variable pay. Otherwise, our colleague has rightly mentioned that it has to be done as a matter of undertaking signed off between the two parties.

Dr. K. Sureshkumar

Thanks for all the responses. Seems like there's no scope of improvement for the employees :-)

I am not disputing the company paying the Variable Component. Even if it's not paid, it is a part of CTC which helps employees in negotiating in the next companies. The issue is when the company abolishes the variable component, the revised letter contains only the fixed salary, which is now the actual CTC minus the variable component of 30%. The next job search will now be based on this reduced salary!

Is there any way we can stop the company from abolishing the variable pay? Let there be no disbursement of the variable component, but it should not be removed from the CTC.

Regards,
Sunny

Understanding Variable Pay Policies

Good companies will always have a well-laid policy on variable pay, and all employees will know whether they are eligible or not based on the policy. Hence, if one is offered variable pay as part of the CTC, they should take care to ask for the company's policy on variable pay before accepting the offer.

Dear Sir,

Is there any particular salary structure that every company should follow the same, and is it as per the law? Different companies follow different salary structures. My concern is that some companies show less basic pay in employees' salaries to minimize the burden on the cost to the company. Is this acceptable? Can we challenge this as per the law? Please suggest.

Thank you,
rk