An attention-grabbing offer from a trading company finally came through. The cost to company salary being offered was Rs 25 lakh, the highest domestic offer at the institute.
Remember, hard work is no guarantee you will get the variable pay mentioned in the package
MUMBAI: Nameet Singh (name changed on request) had his fingers crossed. A second-year management student at the Indian Institute of Foreign Trade (IIFT), New Delhi, he hoped a good placement offer would come his way to culminate all that hard work.
An attention-grabbing offer from a trading company finally came through. The cost to company salary being offered was Rs 25 lakh, the highest domestic offer at the institute.
Singh’s joy knew no bounds. His friends and faculty members, too, cheered, for it was no mean achievement. Nevertheless, he realised that earning this salary would take a lot of hard work.
Of the total salary of Rs 25 lakh, Rs 20 lakh fell under the bracket of variable pay and was linked to performance. Only Rs 5 lakhs was the fixed pay that was guaranteed annually.
CTC is essentially the entire expense a company is willing to incur on an employee. This includes the basic salary and the whole host of other entries like allowances, perquisites, annual performance bonuses (popularly known as variable pay), interest subsidy on company loans, statutory deductions like a company’s contribution to provident fund, premium towards mediclaim and even gratuity.
In recent years, as the CTC figures swell, there has been a rise in variable pays.
Says Munish Bhargava, corporate and placement advisor at IIFT: “Variable pay has been on a rise since the last two to three years, especially with offers made by investment banks and consultancy firms.”
This trend is not entirely new. The concept, wherein an employee’s compensation is divided into two units——-fixed and variable—- is done to inculcate the spirit of competitiveness and thereby increase the productivity of the employee, and largely that of the organisation.
“Fixed pay is enough for an employee to live comfortably. The variable part is to promote effectiveness and enhance the efficiency of the employee,” says Kris Lakshmikanth, founder CEO and managing director of Bangalore based human resource firm HeadHunters India Pvt. Ltd.
However, this fixed:variable pay ratio has lately been getting more and more skewed towards the variable component. From around 80:20 a couple of years ago, the ratio has skewed to as much as 20:80, as in Singh’s case, though the majority of offers are for a 60:40 or 50:50 break-up.
This is also happening at lower levels, and is reflected in the placement offers for B-school students. One of Singh’s classmates at IIFT has been offered an equal fixed:variable ratio of Rs11 lakh each.
Says Krishnan Sekhar, placement coordinator at the Indian Institute of Management-Calcutta (IIM-C), “The average variable component this year is between 25-100% of the fixed component. The positions offered for packages which are inclined towards the variable pay are that of an associate or senior analyst.”
Mukund Menon - head, talent and acquisition group, Satyam Computer Services Ltd, says, “Roles which drive the revenues and profits of an enterprise, like that of a sales manager or those in the business development positions, accrue a higher variable component. We, being in the IT space, have offered approximately 10% as variable pay to absolute freshers and about 20% to those with a year of experience, through the 870 offers made this year students from the IIMs, XLRI, SP Jain, etc.”
Rajesh AR, vice-president of staffing firm TeamLease Services, laments that only 22-25% of the approximately 80,000 management graduates produced each year by 1,600 institutes affiliated with the All India Council for Technical Education are employable by industry standards.
Hence, companies want to galvanise this talent further by setting aside a part of the CTC as a determinant of their performance.
Says Subhro Bhaduri, executive vice-president, human resources at Kotak Mahindra, “An individual’s performance is directly proportional to the performance of the company. Variable pay is based both on the individual as well as the company’s performance.”
The changing emphasis deserves a note - that individual performance is not the sole determinant of variable pay.
“Quarterly performance of the company is focal to the variable component,” states Menon.
Bhaduri adds that if the organisation is not able to earn either due to performance of key personnel or market conditions, then employees don’t stand a chance at getting the variable component.
That’s a possibility graduates like Singh should take into account before settling for any organisation, for even if they excel in terms of individual performance, there is no guarantee the variable pay would be given out to them.
Sandeep Chaudhary, business leader of an Illinois-headquartered human resource consulting firm, sums it all up: “It is nothing but a better way of packaging the CTC and a tool for hedging the company against unforeseen situations.”
According to him, “Fixed pay is what has been committed. This does not hold true in case of variable pay. Nevertheless, it still forms a part of the CTC and only goes to show that more than anything else, variable pay is a tool to grab attention.”
g_priyanka@dnaindia.net
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