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It's that time of the year, many of you would be joining your first job post MBA and many of you would be joining a B-School with the hope of getting a great package after 2 years, while these two are entirely different things, the one common thing between both is the confusion around the complex CTC components (especially for MBA graduates)
Let us understand the various components that are usually present in the CTC.
Fixed Component : This is the guaranteed fixed part that will be credited to your account after deducting income tax and PF or other deductions that you may have opted for. A majority of the people have just 2 types of deductions here - Income Tax and PF.
This is also sometimes referred to as the Gross Salary. Fixed part comprises of components like Basic pay, House rent and other special allowances.=
Variable Component : For most of us, this is also a part of our salary. Variable Pay is often paid once every year and is mostly dependent on the performance and targets. This is also known as Performance Linked Incentive (PLI). You may get some, all or none from the variable payout. For many of us, the fixed and the variable are the only components of the CTC.
Joining bonus : This is a one time payout usually given at the time of joining. This is to ensure that your expenses are taken care of especially when you move to a new city. It may happen that the joining bonus comes with a clause or a bond of working with the organization for a fixed amount of time, failing which you may have to return the joining bonus at the time of exiting the organization. This can be termed as the “Relocation Bonus” for many.
ESOPs / Shares : A lot of companies offer you ESOPs and Shares and most of the time it gets vested or released at the end of every year. So let's say you have shares of Rs 20 Lacs for a period of 4 years then this means at the end of the first year you will have access to only 5 lakhs of those shares and not the entire 20 Lacs.
Retention Bonus : As the name suggests, this is given out when the employees complete a certain amount of time with the organization. It can be 2 years, 3 years or more depending on the organization.
Now let's have a look at the salary of an imaginary MBA graduate from a top B-School of India who has already informed his family that he will be getting paid 30 Lacs per annum in a startup.
What our imaginary graduate missed was, unfortunately, going through the breakup of CTC in detail. Lets enlighten the person
CTC : 30 Lacs
ESOPs - 10 lacs to be vested over 4 years. Per year it comes out to be 2.5 lacs and per month around 20k, pretty good !!
Should it be added as cash in hand ? Absolutely No !
ESOPs are at the discretion of the organization as to when “they” want to give it to you. Usually it happens during any liquidity event like a funding round or the company going for an IPO or the existing equity holders buying the stocks back from you. If none of these happen, your ESOP is nothing but a piece of paper without any “real” cash attached to it. So, for now we will not consider it as our own money. This leaves us with 20 Lacs now.
Joining Bonus : 2 Lacs
This is your money. You will get it in your bank account just like your salary. Unless there are clauses and bonds attached to it, this is pretty much simple. It's a one time payment.
Variable : 4 Lacs
This is again debatable. You can get either the full amount, or a part of it and in worst cases you may not get even a single rupee from this bucket. This is dependent on your performance. At times it has been seen people not getting 100% variable amount even after being eligible for it due to external conditions like business environment, company’s financials and others. So should you consider it your own money, Well, on a slightly safer side, around 50% of it.
Retention Bonus : 2 lacs (after 3 years)
Its simple. Consider it your money if you are planning to stay in the organization for 3 years. Else, forget this amount.
Leaving us with 12 lacs as the FIXED Part
Fixed : 12 Lacs
Now this is the real game. This is the money that you actually own. There will be deductions like tax, gratuity, PF (depending on the organization and your tax planning). Things do not change much here for different organizations. It's more or less the same for everyone.
So to summarize this entire stuff, what we just saw was out of a CTC of 30 Lacs, your cash component is 12 Lakhs of fixed, 2 Lakhs of joining bonus and 2 Lakhs of Variable (assuming 50%), which is 16 Lakhs overall cash component.
At 16 lacs per annum, your in hand salary after normal deductions will be around 1.1 Lacs per month
If you made the mistake of assuming the in-hand salary as 30/12 = 2.5 Lacs per month, We suggest you go through this article once again and share it with your friends to save them from unrealistic expectations of In-hand salary !
Till we meet again with a new super informative article, do check out and subscribe to our new Youtube channel for MBA with videos curated specially for you. Here is the link : https://bit.ly/3BtVgLf
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