Find out what CTC comprises of

Posted by: Arti Bhargava on Apr 10, 2017, 06.30 AM IST

Right after graduating from a top B-school, Varsha landed her dream job with an e-commerce MNC. Her Rs 35 lakh starting pay package was much higher than what her peers had bagged and Varsha was proud of her achievement.

According to Varsha's calculations, she ought to have been getting around Rs 3 lakh per month. However, when her first salary was credited to her account, the amount was only Rs 1.8 lakh. An aghast Varsha now wants to know how that happened.

The package that Varsha was so proud to have cracked was what is technically known as the Cost to Company or CTC in human resource parlance. It comprises all that a company spends on her. If something is an "expense" for a company because of Varsha, it would form part of her CTC.

An expense as small as even the food coupons or meal allowance at the company canteen are also counted in her CTC or 'package'. Her company had therefore, inflated the salary numbers to attract talent by giving them an impression that they are getting a great deal.

Items such as EPF contribution by the employer, life and health insurance facilities, interest subsidies, food and transport allowances and other perks typically form part of the CTC. Annual bonus, one-time joining bonus, stock options and incentives may form a bigger chunk of her CTC.

Therefore, it would have been apt for Varsha to strictly consider the fixed component and ignore the variable bit for the purpose of her monthly take-home salary. The part of the variable component would be performance-linked (sales, number of clients etc.).

Therefore, the key aspect that Varsha should have considered while taking a call on the so-called 'high package' is the transparency in the salary structure. The number that she must focus on is the 'take-home' component and not simply the 'package'.

She might realize that even a job with low CTC can lead to a higher take-home salary because the package with the higher CTC was inflated using various components.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.) This article appeared in Economic Times dated Apr 10, 2017, 06.30 AM IST