Understanding Monthly Variable Pay in CTC: Can It Be Done and What Are the Rules?

Hi All, My organization is planning to add a Monthly Variable Component (MVC) in CTC for Sales employees. This will be payable based on the performance of each employee concerning the target given and the percentage of the target achieved for that month. This is different from incentives, as incentives are paid over and above the CTC depending on monthly schemes. We have been tasked with designing a salary structure accordingly. Since I couldn't find any precedent for MVC, below is what one of my colleagues is proposing:

Example Salary Structure

For example, the monthly net take-home of the employee is Rs 16,000.

Fixed Components

1. Basic - Rs 8,500
2. HRA (5%) - Rs 425
3. Bonus (8.33%) - Rs 708
4. Gross - Rs 9,633

Deductions - (Employee Contributions)

5. PF (12%) - Rs 1,020
6. PT - Rs 200
7. ESIC - Rs 169

8. Payable after Deductions (Gross - Deductions) - Rs 8,244
9. Monthly Variable Component - Rs 7,756

10. Net Take Home (Payable + MVC) - Rs 16,000

However, there are certain doubts that we can't find answers to, so hoping the members here can help answer them:

Questions

Q1. Can variable pay be given monthly? (I couldn't find any government notifications or circulars related to variable pay) Most organizations pay it quarterly or half-yearly.

Q2. If variable pay is given monthly, will it attract any statutory deductions like PF/ESIC? (In the structure above, we assumed it will not attract any statutory deductions)

Q3. What is the maximum limit of Monthly Variable Pay as a percentage of monthly CTC/Basic salary? (We assumed no limit in the above structure)

Q4. What documentation is required to be kept by the organization to justify the monthly variable pay given to employees, for audit purposes?

Please help shed some light on these questions. Thanks!

Is your present employer adjusting the compensation structure without increasing the base salary to which you are entitled? Is your employer requiring each individual to propose a new structure? Do you not have an HR and Finance department in your company? Below are the responses to the concerns raised:

1. Yes, variable pay can be paid monthly.

2. PF and ESI are calculated based on your Basic and Base Salary.

3. There is no maximum limit for variable pay. Generally, organizations allocate anywhere between 20% to 30% of your CTC. Some companies may even consider up to 50%.

4. Need clarification on the question.

Regards