If your objective is to reduce the statutory burden on your company through PF, ESI, etc., I am sorry to say that there is no law stating that your salary should be bifurcated other than as Basic pay and dearness allowance. Unfortunately, these two components will be part of all statutory payments. A salary structure cannot have elements like Basic and Variable Dearness allowance less than what is stipulated in the Minimum Wages notification of the state.
Similar to how the price of any product is determined by demand and supply, salary is also decided based on these factors. The employer and employee agree on an amount, i.e., the salary, which may change depending on two factors: compensating for the cost of living increase and rewarding performance. The former is reflected in the rise in DA, while the latter should be included in the basic pay. Any other allowances the employer chooses to pay or the employee requests may be categorized separately from DA.
Regarding contributions to ESI and PF, the law mandates it to be calculated on total emoluments, not just basic pay and DA. Despite court verdicts and departmental circulars, the common practice is to calculate it based on Basic and DA, leading to disputes and potential litigation.
Gratuity is only payable when an employee leaves the company after completing at least five years of service. In cases of death, the five-year service requirement is waived, although it is accounted for annually on the balance sheet. The Payment of Gratuity Act clearly defines wages, ideally encompassing all allowances, yet in practice, it is often calculated based only on Basic pay and DA.
Therefore, pay structuring, although an art, is a science that must comply with current laws.
Regarding performance appraisals based on the Balanced Score Card
I would defer to Mr. Dinesh Divekar for insights, as I am not an authority on the matter. Dinesh Sir, please advise.