How Should We Structure Compensation and Letters of Intent for New Marketing Executives?

Compensation and Incentive Structure for Marketing Executives

For the IT company, management has selected Marketing Executives. Now, management wants the company to pay only the basic salary (including mobile and travel expenses) if the employees do not bring any business to the company. In that case, the company will pay only the basic salary. Additionally, based on the company's business collection slab, if the employees achieve the business collection targets, the company will provide incentives.

Issuing the Letter of Intent

The company does not intend to issue any appointment letters until after six months. Given this condition, what actions should management take while issuing the letter of intent? Should we include the recruitment conditions in the letter of intent?

Regards, Megha Sharma

CTC Structure and Performance-Linked Remuneration

If the company defines the CTC as composed of (i) Fixed Salary (payable monthly) + (ii) Variable Component (payable annually/quarterly) based on performance, there is no problem in denying the performance-linked remuneration to non-performers, provided the quarterly sales revenue targets are clearly defined and signed for by the employee as accepted.

The fixed component should be adequate for decent living, while the variable component may be three to four times the fixed salary. These two combined will provide an attractive CTC which can lure the high performers to your company.

Yes, you can. It is the company's discretion whether to mention it in the letter of intent or not.

Based on your input, I assume your company wants to treat the recruits as "Trainees" or "Probationers." Whatever the company wants to offer as remuneration, put it in black and white as an "Offer of Appointment" and issue it with such conditions, including the period of Training/Probation. Briefly indicate how the successful candidate is going to be compensated "without any commitment on either side." This should solve your problem. Also, consider the implications under PF/ESI acts.

Regards,
Kumar S.

Policy Clarity and Legal Implications

Your company wants to follow a policy: "if it is heads, I win, if it is tails, you lose." It wants to gain and gain only. In this process, it may create more confusion in defining the relationship with the employee and may risk, in fact, being at the receiving end with the host of labor laws and the law of contracts governing the field, not to speak of the large volume of case law on the interpretation of terms of employment. Therefore, it is better to be clear and keep things simple so that both parties know where they stand in relation to each other.

Regards,
B. Saikumar
HR & Labor Law Advisor
Mumbai

All companies are required to hand over appointment letters to any new joiners of the company. It is always good if you can mention in the appointment letter the fixed and variable percentages of the salary. For example, the fixed amount could be 60% (payable monthly) and the variable amount could be 40% (paid only if the target is achieved). Employees should be given a chance to acclimate to the job rather than having deductions from their first-month salary. If, after 3 or 6 months, an employee does not perform well, the management can deduct the variable amount from their salary.

If your company only provides mobile and travel expenses, you may struggle to attract top marketing executives as they are typically highly paid in the industry. The success of the company depends on their performance, which can be assessed after they have begun working with your firm. It is advisable to inform them about the salary details before bringing them on board.

Thank you.