Salary breakup - CTC vs. In hand | De-influencing
Summary
TLDRThis video script delves into the complexities of salary packages, particularly in India, revealing the gap between the promised 'Cost to Company' (CTC) and actual 'in-hand' salary. It breaks down various components like base salary, joining bonus, ESOPs, and performance bonuses, explaining their impact on perceived earnings. The script also critiques the misleading presentation of average salaries and the societal pressures they create, urging a more informed understanding of compensation structures.
Takeaways
- πΌ The script discusses the complexities of interpreting salary packages, particularly the difference between the 'Cost to Company' (CTC) and the actual 'in-hand' salary.
- π It highlights the importance of considering the purchasing power and living costs when comparing international and domestic job offers.
- π° The base salary is a fixed amount that an employee receives every month, and it's a crucial part of the CTC, but not the whole story.
- π The joining bonus is a one-time payment made when an employee joins a company, but it's not a recurring part of the salary and may need to be repaid if the employee leaves within a certain period.
- π ESOPs (Employee Stock Ownership Plans) are a significant part of some packages, offering potential wealth creation through equity growth, but they come with vesting periods and are not immediate cash.
- π The retention bonus is given to encourage staying with the company, and it's contingent on continued employment; leaving early may require repayment.
- π Performance bonuses are variable and depend on meeting the company's standards, meaning they are not guaranteed parts of the salary.
- π Relocation bonuses are one-time payments to cover the costs of moving to a new city for work, and they are not applicable to everyone.
- π½ Other allowances, such as for meals, books, or travel, are additional perks that may not directly contribute to the in-hand salary if not utilized.
- π The script emphasizes the difference between the average salary reported by colleges and the actual in-hand salary of graduates, noting that averages can be skewed by outliers.
- π€ It encourages a deeper understanding of salary components and their implications on happiness and expectations, as well as the importance of realistic ROI calculations based on actual earnings.
Q & A
What is the expected salary range for an MBA graduate with four to five years of experience according to Sadat?
-Sadat expects a salary range of 6 to 65 lakhs per annum (LPA).
Why does the interviewer believe Sadat's salary expectation is too high?
-The interviewer thinks Sadat's expectation is too high because it exceeds the company's budget and may not align with the actual in-hand salary after considering various components of the compensation package.
What does the acronym 'CTC' stand for in the context of the script?
-CTC stands for 'Cost to Company,' which refers to the total cost the company incurs for an employee, including all components of the salary package.
What is the difference between CTC and in-hand salary as explained in the script?
-CTC includes all components of the salary package such as base salary, bonuses, allowances, and other benefits, whereas in-hand salary is the actual take-home pay after taxes and deductions.
What is a joining bonus and how does it differ from other components of the CTC?
-A joining bonus is a one-time payment made to an employee when they join a company. It differs from other components as it is not a recurring amount and may have to be returned if the employee leaves within a specified period.
What are ESOPs and why are they considered a significant part of the CTC in the script?
-ESOPs, or Employee Stock Options, are a way for employees to buy shares in the company they work for. They are significant because they offer the potential for wealth creation through equity growth, but they are not immediate cash and may have vesting periods.
What is the vesting period for ESOPs and why is it important?
-The vesting period for ESOPs is the duration an employee must work for before they have the right to own the options. It is important because it ensures employee retention and aligns the employee's interests with the company's long-term success.
What is a retention bonus and how does it influence an employee's decision to stay with a company?
-A retention bonus is a payment made to an employee to encourage them to stay with the company for a certain period. It influences the decision to stay by providing a financial incentive to remain with the company, and may have to be returned if the employee leaves before the specified period.
How does the script differentiate between an international offer and an Indian offer in terms of salary?
-The script differentiates by considering the purchasing power and living costs in different countries. An international offer may have a higher value in Indian rupees due to the cost of living differences but does not necessarily mean higher actual income.
What is the significance of performance bonus in the script and how does it affect the in-hand salary?
-The performance bonus is a variable component of the salary based on the employee's performance against set targets. It affects the in-hand salary as it is only received if the performance criteria are met, and it may be subject to taxes.
Why does the script emphasize understanding the components of a salary package rather than just the CTC figure?
-The script emphasizes understanding the components to avoid misconceptions about the actual take-home pay. Knowing the breakdown helps employees to manage their expectations and financial planning more accurately.
What is the role of allowances in the salary package as discussed in the script?
-Allowances in the salary package cover various expenses such as books, education, food, and travel. They contribute to the overall CTC but may not directly increase the in-hand salary as they are reimbursements or benefits contingent on actual expenses incurred.
How does the script explain the difference between the average salary reported by colleges and the actual in-hand salary of graduates?
-The script explains that the average salary reported by colleges often includes non-recurring components and may be skewed by a few high offers, leading to an inflated average. It suggests looking at the median salary for a more accurate representation of the typical graduate's in-hand salary.
What are the social implications of high CTC packages as discussed in the script?
-High CTC packages have social implications such as enhancing the reputation of colleges, making students and their families proud, and creating a positive perception of the industry. However, they may also lead to unrealistic expectations and misunderstandings about actual earnings.
Why does the script suggest that the industry's narrative around high salary packages may not be entirely truthful?
-The script suggests that the narrative is self-serving as it benefits all participants: colleges attract more students, students feel proud despite knowing the salary breakdown, and the industry maintains a positive image. However, it may not accurately represent the typical in-hand salary.
Outlines
π Understanding CTC and In-Hand Salary
The first paragraph introduces the concept of CTC (Cost to Company) and in-hand salary, highlighting the common misconceptions people have about their salary expectations. The speaker, Sadat, explains that a high CTC doesn't equate to a high in-hand salary due to various components like base salary, joining bonus, and taxes. The paragraph emphasizes the importance of understanding how these components work together to form the actual salary one receives. It also touches on the societal and personal pressures that arise from inflated salary expectations and the need to 'de-influence' the perception of large salary packages.
πΌ Breakdown of Salary Components
This paragraph delves into the specifics of different salary components, such as joining bonus, ESOPs, retention bonus, performance bonus, relocation bonus, and other allowances. It explains the one-time nature of joining and relocation bonuses and the conditional aspects of ESOPs, which may not provide immediate financial benefits and are subject to market performance and company policies. The speaker also discusses the variability of performance bonuses and retention bonuses, which are contingent on meeting certain criteria. The paragraph aims to clarify how these components contribute to the total CTC but may not all translate into the in-hand salary of an employee.
π Calculating In-Hand Salary and Industry Practices
The final paragraph discusses the process of calculating the actual in-hand salary after considering taxes and various salary components. It provides an example of how a 65 lakh CTC offer can result in a significantly lower in-hand salary when the base salary, bonuses, and taxes are factored in. The speaker also addresses the skewed perception of average salaries reported by colleges and media, explaining how high outliers can inflate the mean salary and create unrealistic expectations. The paragraph concludes by highlighting the importance of looking at the median salary for a more accurate representation and touches on the self-serving narrative of high average salaries in the industry.
Mindmap
Keywords
π‘CTC
π‘Inhand Salary
π‘Joining Bonus
π‘ESOPs
π‘Retention Bonus
π‘Performance Bonus
π‘Relocation Bonus
π‘Allowances
π‘Vesting Period
π‘Living Costs
π‘Average Salary
Highlights
The importance of understanding the difference between CTC (Cost to Company) and in-hand salary.
The potential for high salary expectations to lead to unhappiness if not met.
The impact of living costs on salary differences between international and domestic offers.
The significance of the base salary in the overall CTC package.
The role of joining bonus as a one-time payment and its implications for salary expectations.
ESOPs (Employee Stock Ownership Plans) as a significant component of the CTC, with 60% of the offer in this example.
The vesting period of ESOPs and its impact on immediate in-hand salary.
Retention bonuses as a means for companies to encourage employee retention.
The conditional nature of performance bonuses and their exclusion from guaranteed in-hand salary.
Relocation bonuses as a one-time payment for moving costs, contingent on relocation.
Other allowances as part of the CTC, such as educational courses and travel reimbursements.
The calculation of in-hand salary after taxes and excluding non-recurring components.
The difference between average and median salary, and why median is a more accurate reflection of typical offers.
The skewed perception of average salaries due to high outliers, leading to unrealistic expectations.
The self-serving narrative of high CTCs in industry, colleges, and media.
The social implications of high CTCs, including college reputation and student pride.
The encouragement to appreciate founders for their hard work in providing salaries.
Transcripts
so Sadat uh what is your salary
expectation well I think I'm an MBA with
four to five years of experience I
expect something around 6 to 65 LPA uh
that's a bit too steep I don't think
we'll be able to 65 lakhs done sir thank
you sir stay happy sign in
sign sign
it
congratulations thank you sir thank you
ma'am
sir I need to talk to you regarding
something sir H tell me sir interview 65
lakh ccci which means 5.41 lakhs in hand
sir I got only 1.36 lak
sir beta you don't know how all of these
things work this means you also don't
know how CTC and inhand works don't
disturb me with this go and talk to HR
wait wait a minute talk to HR no you
need to understand how this works how
CTC and inhand works because when you
see those newspapers and colleges and
all these people
saying you don't need to feel that for
more you need to understand how this
calculation actually works so in this
episode of De influencing we thought
we'll de influence salary packages and
I'm talking about those large
goodlooking juicy ones because the form
over here shouldn't happen you should
just understand how it works we'll talk
about the good we'll talk about the bad
cuz certainly these guys won't so let's
[Music]
begin so there's nothing wrong with the
big fact CTC the problem is your
expectation what happens is once you see
this you divide the CTC by 12 take out a
monthly number and tell everyone now
everyone's celebrating but what you've
done is youve set expectations for
society your friends people and yourself
and if something happens that changes
that reality it causes unhappiness so
enough with philosophy let's start to
decode this entire package so check
these two offers out look nice don't
they so this one over here is 1.7 crores
but notice that it's actually an
international offer purchasing power of
every country is different we also call
this living costs for example if you
look at say Alo or potatoes in India it
costs this much here and this much
abroad you could do the same thing with
say a bottle of water the same thing
would apply to all other living costs
like buying a car taxi traveling etc etc
and because of those base costs the
living costs increase which is why
there's a difference in salary sometimes
now this changes two things one you are
not noticing that there is a price
difference of living costs of living in
India and living abroad the living costs
mean that the salaries are also slightly
different when you hear about such a
package the first question you should
ask is job abroad is this job abroad or
is this job in India now this doesn't
mean it's more money it just means that
it's more money in Indian rupees
but anyway let's come straight to the
point let's look at an Indian offer and
this is a real offer I've removed the
details but this breakdown is actually
true and let's understand the difference
between the CTC and the inhand and how
they can possibly be a really large
difference this offer is of 65 lakh
rupees you know the one that we gave
sadhart and over here we'll break down
all these different paths starting from
the base salary which is 16 lakh rupees
huh 16 lakh rupees I thought the offer
was 65 lakhs that's exactly my point
this is your fixed base salary just you
know you will get this no matter what at
the end of the month and 16 lakhs divide
by 12 is a lot less than 65 lakhs
divided by
12 up you have to pay tax on this
obviously so all of this is coming to
you but you have to pay income tax
obviously but we'll do that in the end
now that you've understood the base
salary let's move on to the next part
and that is called the joining bonus
this pretty easy to understand a joining
bonus is simply the amount you get when
you join the company and this is amazing
it's actual real cash there's no problem
over here and you can enjoy it there
just two small issues one this is a
onetime event so it won't happen the
year 2 or year three so thinking that
entire CTC is yours may not be right
because this joining bonus is not a
recurring amount it happens once second
the joining bonus exists so that you
stay in the company some of these
companies will have a clause that say if
you leave in the next one or 2 years you
have to pay back that joining
bonus so well you have to stay back so I
don't know how you should calculate it
but it's a onetime event the next
component is esops my favorite esops is
40 lakh RUP is in a 65 lakh CTC that's
like 60% of the entire offer so what are
esops esops is a way for you to create
wealth it gives you the option to buy
shares in the company you're working at
so if you're working for a Google and
Google takes off you also earn the
equity growth of that company and this
is fantastic it's actually a great way a
lot of people have become rich by
becoming just ESOP holders and growth in
the equity but the understanding is the
problem this 40 lakhs doesn't come in
the first year usually there is a
vesting period now let's suppose a
vesting period is 4 years vesting period
simply means you have to work to earn
the right to own these esops these
options so a 4-year wait and you
actually get the amount in the fifth
year is a longer duration it shouldn't
be included in your package because
you're not getting it in the first year
also if the company goes to zero the
value of the e top is zero it's Equity
we go up together go down together a
private company the only way that you
can actually cash in or turn your esops
which is a piece of paper into money is
if the company buys back your esops
themselves or the company has a
liquidation event like it goes IPO it
gets bought out an investor wants to
enter and buy shares from you etc etc in
only that case will you actually convert
this paper into Cash
oh of course like every other thing when
you earn from an ESOP you have to pay
the tax too then we have the retention
bonus which is simply a reason for you
to stay so in this case it's 1 lakh
rupees and if you stay for that year you
get to keep it but if you leave then you
have to pay that 1 lakh back now this
could be offered in the second or third
year completely at the discretion of the
company but let me assume for this case
it may be non-recording okay the next
component
is performance bonus I love this because
people who work in our office are given
kras kras and kpis if they don't meet
the standard of the company which is
pretty high you basically won't get that
bonus and we have this crazy way of
calculating it and HR gives them the
incentive we call it here if they
performed well so well I guess the
problem while looking at this when
getting an offer is
if you do well you get the payout
otherwise you don't then we have
relocation bonus which is pretty simple
if you're moving from one city to
another there's a onetime payment for
you to move this is fine you may or may
not have it if you're work from home it
does not apply if you're not moving
cities again it does not apply in many
cases people don't even do a relocation
bonus but we included it because hey
we're making a video we have to include
everything that's included now you know
and before moving to the inhand
calculation of the salary I have one
more component to talk about and that is
other allowances this could include
stuff like books I can see educational
courses food traveling Etc if you don't
do any of this and don't take the
reimbursement you don't get the benefit
or if the meal coupons you get for the
food just don't work in a restaurant you
want you can't benefit out of it but
remember these are other perks you get
with that job and usually upon joining
you don't know how to actually claim
them but it's a nice little thing to
join a nice little company company with
some good bucks so as you can see all of
the components are either one time or
they happen at a future date after a few
years so what we need to do is find out
out of this big CTC we have what's our
final in hand so if I take 65 lakhs
divided by 12 it's 5.4 lakhs a month but
what's the actual inhand let's see so if
I take the 16 lakhs and add the 5 lakh
bonus the per month in hand after taxes
is
1.36 lakhs and then you have esops so
let's assume there's a 4-year vesting
and it's 40 lakhs so you'll get 10 lakhs
every year vested remember vested that
is eligible for a sale but not just
vested you need the company to actually
do a buyback if it's a private company
and you need to get it allocated and
sell it in the open market if it's a
public company so I won't include it
over here but now you know now let's
calculate the second year salary now
common sense says that every year you
should get some bump in the base salary
so let's assume it's a 10% increase and
let's say you also got a performance
bonus I've also added over here A 1 lakh
retention bonus uh so there won't be any
joining bonus um we are looking at after
all these calculations
it's 1.25
lakhs and of course remember if you
leave the job in a year that retention
bonus 1 lakh you have to give back cool
now that we understand this I think
there is just one
question let's look at what happens in
the industry starting with colleges we
can see this headline says average
salary of the college was 28.8 lakhs now
that feels amazing and now we know that
the average salary was calculated with a
bunch of stuff that is non- recing and
the inhand is different but there's one
more aspect to it it's how the average
is calculated and I have an actual table
over here to show you in this example we
have 40 students who got 5 lakh rupees
we have 25 students and 20 students who
got 8 lakhs and 15 lakhs respectively 10
students who got 40 lakh rupees and just
five students who got 80 lakhs what I
want you to notice here is that 40
students Got 5 lakhs five students got
80 lakhs so here's what you have to
notice the mode is 5 lakh rupees which
is the most number of students would
actually offer 5 lakhs it's the most
recurring number second the mean is 15
lakh rupees and it's 15 because we have
some students who got 80 lakhs offer it
them skewed because of that skew they've
made this imaginary average number of 15
lakh rupees and this is what you see in
the newspapers and you feel damn this
average is very high but the average is
because of the skew what you have to
look at is actually the median which is
8 lakhs this is the the proper balance
but not a lot of newspapers or media
agencies actually talk about it they
talk about that higher number 15 you
know why cuz it's juicy but it ain't the
truth but the problem here is that a lot
of people who don't understand this will
calculate an Roi based on the CTC and
the college fees and
think let me get this MBA the second
thing I wanted to talk about are the
social implications so over here when a
nice Etc is revealed the college looks
good cuz it can actually attract more
students for a higher fee I'm talking
about private colleges the student is
happy with this even though he knows the
breakup because hey everyone in his
family is super proud of him and third
the entire industry generally looks good
that's why this will never break this
chuckra view is self serving every
participant is happy with the narrative
I hope you found this episode
interesting tell us what other episodes
we can pick out that we can de influence
in the comments below say thank you to
the entire production crew it takes a
village to make these episodes happen
watch all the de influencing series and
the psychology series more shows are
coming out on 01 say something nice in
the comments goodbye see you in the next
episode thank you sir thank you
ma'am
but guys look Founders are amazing
people and they really work hard to pay
your salaries so send a flying kiss to
them they're doing a good job
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