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Onkar Tiwari |
March 03, 2005
esides the course name itself, the three most important letters in the MBA course are Cost to Company.
Paradoxically though, it is the first worry but the last question on everyone's minds (for a variety of reasons ranging from hesitation to a company's policy).
In addition, recruiters might include elements that cost the company, but do not translate into a cash equivalent for the candidate.
This leads to the common problem of 'inflated' CTC recruitment salaries.
Therefore, estimating in-hand income becomes a matter of guesswork that leads to miscommunication. And, ultimately, ill will that could mar otherwise great interviews and offers.
The surprising part is, with a little bit of surfing and commonsense guidelines, a large amount of the unpredictability could be reduced.
On the Web
1. For starters, check out the excellent article by Arnav Pandya in the Economic Times on this common problem.
Though slightly dated, it is still relevant. It discusses the various ways in which the CTC may be tweaked.
If any of these appear in your offer letter, be sure it is a red signal.
2. A better way of understanding CTC is to figure out the elements that comprise it. It consists of various kinds of allowances, bonuses and costs.
A comprehensive list of these can be found at www.humanlinks.com/comp.htm
These components are, however, affected by two crucial conditions:
i. The first is the company policy.
This often determines the actual amount received, the form it is received, etc. For example, a performance bonus, where the highest bonus possible, is included in the CTC. But in-hand is usually lesser for the average employee.
Another instance would be travel expenses for a set limit may be reimbursed. It would not be an income for an employee but it would be included in the CTC anyway.
Both would distort CTC upwards. Thus, finding out a company's policy conditions towards these components is a must.
ii. Taxation is the second key factor.
It significantly reduces in-hand income. It is also fairly complex and changed often.
The recent budget proposal, for example, has brought about the concept of the Fringe Benefit Tax.
In its current form, it is specifically designed to target certain perks that the company may lavish on employees (which are not defined as a business expense), and is likely to widen the difference between the CTC and in-hand income.
For more information, please check Budget 2005 at http://in.rediff.com/money/bud2005.htm
Another site that provides details including an extremely useful tax calculator by Ernest andYoung is the Budget Section at Moneycontrol.com.
Finally, besides these resources, some commonsense guidelines can give a clearer picture of the cost to company.
1. Listen to the grapevine
The view of the company and package from trusted alumni in it and from friends on other campuses that the company has visited can provide insights.
2. Seek the advice of a chartered accountant friend
Especially important for those who are specialists in marketing and/or engineering/ technological areas, who do not have a finance background.
3. Analyse the company's response to the question
When the question is posed to the company, they may respond in a variety of ways. They may be candid. They may inflate figures, belittle the question, postpone it, divert it and a variety of other means.
The first approach is usually the best.
4. Offer details provided by the firm compared to its competitors
If other companies in the same sector are open and transparent about their cost to company policy and the company concerned is not, it could be a warning sign.
5. Attitude of the College Placement Team
If your college placement team makes it clear at the outset that firms must be transparent about their cost to company breakup in the offers, it could avoid a whole host of issues later.
However, this strongly depends on the bargaining power of the school.
6. Consider the profile of the job
The job profile gives valuable clues into the package.
For companies that offer a fixed HRA amount, location assumes great importance. In a city like Mumbai, for example, it would mean a much lower take home salary.
Similarly, the percentage fluctuation in sales is likely to be higher as it is commission-driven. There is thus a lot behind the numbers published annually.
A combination of the above approaches could help you better, besides offering a better understanding of what you are getting.
You can then shift focus to other equally important areas, like the job profile, expectations and, most important, gives an insight into the culture of the company giving the offer.
Illustration: Uttam Ghosh