Salary breakup - CTC vs. In hand | De-influencing

Summary

This 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

• 💼 The script discusses the complexities of interpreting salary packages, particularly the difference between the 'Cost to Company' (CTC) and the actual 'in-hand' salary.
• 🌐 It highlights the importance of considering the purchasing power and living costs when comparing international and domestic job offers.
• 💰 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.
• 🎁 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.
• 📈 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.
• 🔄 The retention bonus is given to encourage staying with the company, and it's contingent on continued employment; leaving early may require repayment.
• 🏆 Performance bonuses are variable and depend on meeting the company's standards, meaning they are not guaranteed parts of the salary.
• 🚀 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.
• 🍽 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.
• 📊 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.
• 🤔 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

00:00

📊 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.

05:02

💼 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.

10:03

📈 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.

Keywords

💡CTC

CTC stands for 'Cost to Company' and refers to the total cost borne by the employer for an employee, including all components of salary, bonuses, and benefits. In the video, it is used to illustrate the difference between the expected and actual take-home salary, highlighting how a large CTC can be misleading if not properly understood. The script uses the example of an offer of 65 lakhs CTC to explain the various components that make up this figure.

💡Inhand Salary

Inhand Salary is the actual amount received by an employee after all deductions, including taxes and other non-cash components, have been accounted for. The video emphasizes the importance of understanding the difference between a high CTC and the actual inhand salary, using the example of a candidate expecting a much higher monthly salary than what they actually receive after taxes and other deductions.

💡Joining Bonus

A Joining Bonus is a one-time payment made to an employee when they start a new job. The video script mentions it as part of the CTC but clarifies that it is a non-recurring amount and should not be considered as part of the regular salary. It also warns of potential clauses requiring repayment if the employee leaves within a certain period.

💡ESOPs

ESOPs, or Employee Stock Option Plans, are a form of equity compensation where employees receive options to buy shares of the company at a predetermined price. The script explains that ESOPs can represent a significant portion of the CTC, but they come with vesting periods and are subject to market risks, meaning their actual value can vary and they may not always result in wealth creation.

💡Retention Bonus

A Retention Bonus is a financial incentive offered to employees to encourage them to stay with the company for a certain period. The video describes it as part of the CTC but notes that it is contingent on continued employment and may need to be repaid if the employee leaves before the specified time.

💡Performance Bonus

A Performance Bonus is additional compensation awarded to employees based on their performance and the company's success. The script points out that this bonus is not guaranteed and is subject to the employee meeting specific performance criteria, emphasizing the variability of this component of the CTC.

💡Relocation Bonus

A Relocation Bonus is a one-time payment provided to employees who are required to move to a different location for work. The video mentions it as a potential part of the CTC but notes that it is specific to situations involving a physical move and may not apply to all employees, especially those working remotely.

💡Allowances

Allowances refer to additional benefits provided to employees, such as meal vouchers, travel reimbursements, or educational support. The script explains that these allowances are part of the CTC but are not guaranteed income, as they depend on the employee's use of these benefits and may not always be utilized.

💡Vesting Period

A Vesting Period is the length of time an employee must wait before they can fully own or exercise their ESOPs or other equity-based compensation. The video uses the vesting period to explain why a large portion of the CTC, such as ESOPs, may not be immediately realizable and is subject to future performance and company policies.

💡Living Costs

Living Costs refer to the expenses associated with daily life, such as food, housing, and transportation. The script contrasts the living costs in different countries to explain why a high CTC in one country may not equate to the same purchasing power in another, affecting the perceived value of a salary package.

💡Average Salary

Average Salary is a statistical measure that represents the central tendency of a set of salary figures. The video discusses how average salaries can be misleading due to the inclusion of non-recurring and variable components of the CTC, and how they can be skewed by outliers, leading to a misrepresentation of typical earnings.

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