Understanding Annual Component in CTC and Employee Compensation

Hi,

I am working for an S/W company, and I am in sales and marketing. It's a new company, and when I was joining, I was offered 2.52 lacs as CTC (which is inclusive of an annual component of 48k, and it was said that it would be given after completion of one year). Now, one year of service has been completed, and I was in expectation that this 48k (48/12 = 4k) would be added from the 13th month and this 48k would be released. However, I was told that the 48k would be given now, but this 4k would not be added from the 13th month. Actually, your CTC is 2.52 - 48k = 2.04 and not 2.52.

My questions are:
1. When I joined, my CTC was 2.52 lacs, but after a year, I was told that my CTC is 2.04 lacs. How can this be possible, and I feel there is no logic.
2. I would also like to know what exactly an annual component means? Request to make me clear on the same.

Sri.

Dear Sredharan,

The annual component is like a fixed amount that is a part of your CTC and is added to your CTC. It is paid at the time of Diwali as a bonus on a pro-rata basis. Sometimes, it may be paid only after the completion of one year or at the time of separation from the company.

No, the company can't reduce your CTC without a proper valid reason. It is advisable to discuss this with your Human Resources department. If they mention that it is due to an amendment in the prevailing HR policy, ask them to include it as a different component. They cannot reduce your CTC without any prior notification.

Hopefully, the matter will be resolved, and they may have structured it differently. Otherwise, it could impact the attrition rate.

Regards,
Amit Seth.

Hello,

Your annual component is a one-time joining allowance, which is paid only once when you join. Companies may have different terms for paying this. There is no legal rule regarding this. This practice is actually a malpractice in recruiting talent from competitors' workforce.

Regards,

Dear Amith,

You mentioned that the annual component is added to the CTC. Here, I have a doubt - does the CTC include the annual component or exclude it? Is the annual component also considered as a cost to the company? Please clarify my doubts.

Thank you.

Dear Mahadeva,

Yes, it is also included in CTC as it is also a cost to the company which the company is going to bear for the employee. I hope it is clearer to you now.

Yes, certainly.

As for the company for the first year, it was a cost factor, and hence they counted it as part of your CTC for that particular year. From the next year, you shall definitely be getting a salary hike based on your performance, which may or may not be equivalent to your annual component.

As I have mentioned in my previous posts, it is an effective tool for headhunting. It is usually paid because employees come from other companies, breaching the bonds and contracts signed with their previous company, leading to some financial liability. To attract such employees, new companies offer these kinds of allowances.

Regards,