Dear Mr Saswata Banerjee,
Dhruvik in his post has clearly stated that "appointment letter that if he/she is not able to achieve the targets, their salaries would be deducted to an extent of 40%"
While drafting appointment letter, it must be clearly worded. It should mention what is fixed component and what is variable. This variable portion depends on the targets attained, company performance etc. Whether employee attains certain target or not, there has to be some fixed amount that we call as take-home salary.
Secondly, how can we explain variation in salary during labour officer's inspection? During my HR days in a hotel, Labour Officer during his inspection, lauded me for keeping all the salary components uniform for all the employees. We had added one "incentive" section wherein salespersons, front office personnel etc were given incentives.
Thirdly, Dhruvik is not clear on whether he would like to reduce the basic salary also. If basic salary is reduced then PF contribution will also come down and it could attract attention of the PF Inspectors during their inspection. Same thing is applicable to ESI if the employees are covered under the ESI. Since ESI is calculated on the gross salary, variation in gross amount is likely to come under the scanner of ESI inspector as well.
In many companies, supplementary letter is issued that mentions method of calculation of variable pay, performance bonus, sales incentives etc. Inclusion of these terms in the appointment letter itself is not desirable. I know a case of software professional wherein her fixed salary is Rs 20L and variable salary is also Rs 20L per annum. For the latter part, she has been issued separate letter.
Thanks,
Dinesh Divekar