Are Incentives Really Part of Your CTC? Let's Discuss This Job Offer Dilemma

Hi guys,

I work for a software company as a Business Development (BD) professional. In our company, individuals in Sales receive incentives based on their performances. Are these incentives considered part of the Cost to Company (CTC)?

I have recently received an offer from another company where they have increased my fixed CTC. However, the majority of the hike is allocated as incentives. The offer breakdown is as follows:

- Fixed pay: $200,000.00
- Incentives: $100,000.00
- Total: $200,000.00

The offer mentions that incentives are paid upon achieving targets. They only provide the total figure as fixed pay. Considering this information, I have a concern regarding whether incentives are included in the CTC.

Please let me know your thoughts on this situation. Thank you.

Hi,

CTC includes only:
- Basic
- HRA
- Special allowance
- Variable allowance
- Company contribution to PF
- Company Contribution to ESIC

These are the major components to consider in CTC. Incentives are part of performance-based compensation.

Make sure that the incentive proposed is an achievable one. Some companies propose huge incentives and set unattainable targets. Normally, incentives are not part of the CTC. However, some companies include them in the CTC to make it more attractive to employees.

Incentives are not a part of CTC; they are only a motivating factor that a company wishes to give to its employees.

Friends, things are different in my company (Godrej Agrovet Ltd). Here, incentives are included in CTC.

It is part of the CTC as long as the periodicity of payment is less than 2 months. This has the judgment of the Supreme Court as clarified by the Kerala High Court in United Breweries Ltd vs. ESI Corporation, 2003 LLR 272. The ESI Corporation has also issued notification No-S-11/12/1/2002-Ins. IV Col. II dated 2-4-2003 to this effect.

Dear All,

Just thought of sharing my experience and view on HR salary fitments. No INCENTIVE IS PART OF CTC as long as it is PAID & COMPUTED as PERFORMANCE LINKED, rather considered as VARIABLE PAY.

Also, being HR professionals, HR Practitioners, or HR aspirants, suggest not to take any PARTICULAR companies EXAMPLE as they are GOVERNED by different REGULATORY guidelines depending on their type of COMPANY (e.g. PRIVATE LTD, PUBLIC LTD, etc.), NATURE OF BUSINESS, AREA OF OPERATION, LAW OF LAND, which are some factors governing payouts. Also, industries like MANUFACTURING, SOFTWARE, BPO/ITES, BANKING, etc. play a role.

Apart from:

BASIC

HRA

CONVEYANCE (restricted to Rs. 96,000/- PA for TAX exemption)

LTA (Non-Taxable for 2 yrs in a row of 4 yrs)

PF Gratuity

Superannuation (Please read separately if not sure)

**Company might PAY UNDER ANY HEADING - Provided that would be TAXABLE depending on CTC. Be it:

Special Allowance

Executive Allowance

Loan Allowance

Supplementary Allowance

However, if that is not linked to PERFORMANCE and just paid monthly, then SALARY ANNEXURE should be referred with SALARY SLIPS to COMPUTE the actual AMOUNT DRAWN.

Regards,

MBHR

Hi Guys,

CTC means Cost to the Company. So, any cost incurred on an employee is a part of CTC. It is only how you present the salary structure that matters.

The basic salary structure includes only the following:
- BASIC
- HRA
- CONVEYANCE (restricted to Rs. 96,000/- PA for tax exemption)
- LTA (Non-taxable for 2 years in a row of 4 years)
- PF

All the above components form the gross salary. Incentives are variable pay and are not included in the gross salary, but they are definitely a part of CTC.

Thank you,
Vidhya

Hi Vindya,

Good to know you explained this beautifully and pretty much replicated what I wrote...! :)

Now, assuming an employee has a gross income of 278,000/- as CTC, however, it is quoted in the ANNEXURE OF SALARY STRUCTURING - Incentive (having slabs - kindly read separately). The higher slab is 75K per quarter (that implies - 75,000/- X 4 = 300,000/- PA - Performance Linked).

Does that imply the person is at 278,000/- gross + 300,000/-(Variable Pay) = 578,000 as CTC? Kindly check and enlighten us all.

Your enlightenment is awaited.

Regards

Hi gskumars

The term CTC means cost to the company. Whatever company is incurring on u comes in CTC.Total compensation includes the value of all the perks and benefits one gets from the Company in addition to ones salary.

Following are the components which comes in CTC.

FIXED SALARY

Basic Salary

House Rent Allowance

Company Leased Accomodation

City Compensatory Allowance

Special Allowance

Conveyance Allowance

REIMBURSEMENTS

MEAL COUPONS

Entertainment

Books/Periodicals

Education

House Maintenance Allowance

Furnishing Allowance

Dress/Uniform Allowance

Other Allowances

BENEFITS/ PERKS

Company car

Driver's Salary

Maintenance and Petrol Expenses

Leave Travel Allowance

Canteen Subsidy

Telephone Expenses

Mobile Phone

Club Membership

Electricity/Gas

Servant/Gardener

Credit Cards

Furnishings/Durables

Holiday Facilities

Medical Reimbursements

Medical Insurance

RETIRALS

Provident Fund

Superannuation

Gratuity

BONUS

Fixed Bonus

Productivity Linked Variable Bonus(*)

Any Other Performance Oriented Incentive including Stock Option Plan(*)

The above mentioned components comes in CTC.

KATYANA

CTC stands for Cost to Company. This refers to whatever the company pays you in terms of cash, which is considered as part of your CTC. It depends on the company's pay policy how they structure their pay. Regular bonuses as per the Payment of Bonus Act also form part of the CTC. In that sense, performance bonuses or productivity bonuses will also be considered as part of the CTC.

Incentives come in various types. Sometimes, incentives based on overall performance rating are included in the CTC, with a maximum amount allotted. On the other hand, incentives based on specific targets, especially sales, are kept separate from the CTC.

Thank you for using our services.

Variable pay definitely is part of CTC. The variable pay is performance-based. In my company, it is a 5-point scale, and the variable pay is paid based on the employees' achievement of the mutually agreed objectives and ratings at the beginning of the financial year.

Hari

Dear Hari,

Variable pay definitely is part of CTC. The variable pay is performance-based. In my company, it is a 5-point scale, and the variable pay is paid based on the employees' achievement of the mutually agreed objectives and ratings at the beginning of the financial year.

Incentives are not part of CTC; they are not a must. Incentives are given only once an employee achieves his target or objective as set by the organization.

Regards,
Naresh Jandial

The breakup of the CTC is basic salary, deferred income, incentives based on volume sales/revenues/commission, yearly benefits, perks in cash, and perks in kind (mobile/house). So you have got a hike in one of the components.

Dear Mr. Joshi,

I would request all of you to go through Katyana's post; CTC includes both the fixed part and the variable part (Variable part is an incentive in a sense that you need to achieve a specific target to claim that amount). CTC includes everything - perks, reimbursements, and other benefits given by an organization. So the bottom line is: Incentives are very much a part of the CTC.

Thanks and Regards,
Ayona