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Anonymous
Dear HR Professionals,

I have a couple of questions regarding the structuring of an offer letter for a Sales Manager position:

1. In the case of a compensation package with a 50:50 ratio for fixed and variable components, should the variable component (such as commissions or bonuses) be included in the Cost to Company (CTC) calculation?

2. If a third-party recruitment agency is involved in hiring for this role, and they charge a fee based on a percentage of the CTC, how would the calculation work? Specifically, if the agency charges 8.33% of the CTC as their fee, would the variable pay component be factored into the CTC for this calculation?

I would greatly appreciate your insights and expertise in clarifying these points.

From India, Bengaluru
Madhu.T.K
4210

CTC means cost to company. It shall include all costs of employing a person. If you have 50% of total remuneration as commission, incentives etc the same shall invariably be part of CTC. But the recruiters cannot take advantage of this variable part because if the employee does not earn any commission or incentive will the recruiter replace him by another person? No. Again, variable part of remuneration does not guarantee any pay out. It shall depend on performance which is linked to market. Therefore, even if you put a unreasonable amount as variable, it is part of CTC. It is upto the employee to accept the offer or not, or to counter the structure by a question "is this variable pay really going to accrue based on the existing market conditions?". You any say that it is real and you will earn it, but the employee should stick on the fixed part of salary only. If he achieve target, the variable pay will come, and that would be a bonus to him. As such, only fixed part of salary would be real salary, the salary on which statutory contributions will be based at. This should be the salary on which the recruiters should get their service charge. If the recruiters charge on CTC which is always inflated by unrealistic amounts, that is wrong.
From India, Kannur
kannanmv
257

I would recommend that you split into Fixed Pay and Variable pay.

Work out the CTC component to the Fixed Pay and indicate to the employee that he/ she will be getting variable pay based on his/ her perforrmance.

To the agency that supports you in your recruitment process, explicitly tell them that you will be paying consultancy fee @ 8.33% of Fixed pay only and not on the variable pay as it will neither be consistent nor constant.

As Madhu indicated, if your Fixed pay ratio to Variable pay is too low, it may not interest fresh recruits. You need to assess the market value of the candidates and then arrive at the ratio.

On the other hand if the ratio is high, you may end up paying high pay package without equivalent revenue generation to the Company.

Regards

MVK

From India, Madras
saswatabanerjee
2385

1. In the case of a compensation package with a 50:50 ratio for fixed and variable components, should the variable component (such as commissions or bonuses) be included in the Cost to Company (CTC) calculation?

Yes, you need to include the variable component in CTC
That is how you fool employees into thinking that this is a good deal for them.
I have seen companies even include cost of one time training, and unplayable components and gratuity in CTC.
(I have seen this in the recruitment letter of a MNC bank to an MBA college)
So it will not really be surprising the recruitment fees is added to CTC

Personally, though, I have always considered CTC as a fraud on employees

2. If a third-party recruitment agency is involved in hiring for this role, and they charge a fee based on a percentage of the CTC, how would the calculation work? Specifically, if the agency charges 8.33% of the CTC as their fee, would the variable pay component be factored into the CTC for this calculation?

The agency fee would included all items on the CTC.

From India, Mumbai
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