Which is the one number, besides age, that people lie about most often? The answer, which some of you might have already guessed, is salary, or in corporate parlance, the ‘cost to company’ (CTC).
Most of these lies are harmless and minor exaggerations by a few individuals to inflate their egos in their social circles. However, there are repercussions when organizations and recruiters resort to such lies to make their offer letters more attractive. Many organizations and recruiters are outrightly misrepresenting the CTCs offered to their prospective employees. CTC has become a marketing tool, and several companies grossly exaggerate it.
Over the last few months, I have encountered several LinkedIn posts by distraught employees voicing their frustrations after getting conned by a firm’s exaggerated CTC offering. One firm visiting an IIT campus inflated its CTC by over 50% by including medical insurance benefits–not the insurance premium–but the entire ₹5 lakh worth of insurance payout in its CTC. An outright misrepresentation. A scam, in my opinion.
Employees discover these misrepresentations only after they receive their first salary, and when the credited amount appears only like a shadow of the amount they were expecting. That is the point for them, when the penny literally drops.
One way to safeguard yourself from such deceptions is by understanding that CTC contains various costs that a company might spend on you. Might! CTC may further include costs like insurance premiums, training and development costs, and some companies may even include expenses incurred on office furniture, equipment, and electricity. While these are costs for the company, they may not translate into benefits for you. This plays a crucial role during salary negotiations as companies, through deceitful financial engineering, may increase your CTC without enhancing any real benefits you might receive. Therefore, the CTC can be deceptive and is not the right metric for you to use when comparing alternative offers or during negotiations with the the human resources (HR) department of companies.
To find the right metric, you must look at all the components in your CTC. Understanding these components would also set your expectations right. CTC is the sum total of direct fixed benefits, indirect benefits, retirement benefits and conditional benefits.
Direct fixed benefits are the components that appear on your monthly salary slips. These include basic salary and allowances like special allowances, house rent allowances, etc.
Indirect benefits, as said earlier, are costs for companies–like insurance premiums, equipment costs, and other costs that may not translate into monetary benefits for you. This is the component most often used by companies to inflate CTCs.
Retirement benefits include provident fund contributions (PF) and gratuity. While PF is paid for all months, gratuity is paid in the full and final settlement after an employee completes approximately five years with a firm.
Conditional benefits include components like joining, retention, and performance bonuses. Joining and retention bonuses are one-time and conditional on one’s tenure with the firm. Some firms give the joining bonus upfront but with a clawback clause–meaning the firm can retrieve the amount if the employee quits before a specified period. Performance bonus is also a variable component that you may or may not receive. Some firms also offer stock options, which are tricky to evaluate as their monetizable value depends on many factors and may fluctuate with market conditions.
Out of the four broad components above, only direct fixed benefits are assured and are often a better metric to discuss with your recruiter during negotiations. Presently, there are no laws regulating how companies structure salaries between these components, and the firms exploit this gap and use their own moral compass and creative liberties to inflate the CTC. If your CTC structure is rife with indirect components and conditional benefits, gently nudge your recruiter to offer more direct fixed benefits instead. You need to remove the froth to safeguard yourself from these CTC gimmicks.
Another thing you can do to protect yourself from exaggerated CTCs is considering a longer time frame. Firms usually inflate the first year’s CTC by including components like a signing bonus, which is a one-time benefit. In such a case, calculate your total CTC for at least a three-year period, and use that figure to compare alternative offers. This averages the initial CTC spike, and you get a more realistic estimate of the money you would make over a three-to-five-year period.
To sum up, here is a quote by Dr. Chester Karrass: “In business as in life, you don’t get what you deserve; you get what you negotiate.” In addition to negotiating, negotiating on the right metric would help you further sweeten your deal or, at least, keep you away from any unpleasant surprises.
Prashant Navin Gupta is a management consultant and author of the book The MBA Mindset: 13 B-school Secrets to kick-start your career.