Blogs By Jai-D

CTC Inflation, What? Why? How?

November 20, 2020

Money

Photo by Igal Ness on Unsplash

Ever saw CTC of around 40-50 Lakhs with a base of 12-15 Lakhs and wondered where are the rest of 30-35 Lakhs? Yeah, me too.

And yes, these numbers are from an actual company that exists on this earth! So here I will try my best to uncover what all goes to boost a 12-15 Lakh base to 40-50 Lakh CTC.

Everyone looking for colleges, especially for Computer Science focuses a lot on placement stats. What were the average packages provided, the companies which visited, and the highest packages provided? Not often but we would see these huge packages of 50 LPA and instantly start dividing it by 12 and thinking 4 Lakhs per month…daaam 😍 We all did this, didn’t we? 😓

First, let’s understand what is CTC. It means Cost to Company, so basically, the amount of company is going to spend on you, which can be in various ways like

  • Health Care
  • Life Insurance
  • Food expenses
  • Company Shares
  • Travel Cost
  • Bonus (usually a year-end bonus, may depend on your performance)
  • Joining bonus (mostly one time)
  • Relocation Bonus (mostly one time)
  • And the amount that will be actually sent to your bank account.

Now there are a lot of fine print when it comes to the total CTC, some recurring ones are

  • Bonus: In simple terms bonus incudes the extra money you will get at the year-end. There is various way of mentioning this in CTC, some of the most common ones are:

    • Direct Bonus: This directly mentions the bonus you’ll get at the year-end
    • Performance-Based Bonus: A minimum bonus will be mentioned but you can get more than this if you perform well. A lot of companies are using this strategy to hype their employees to perform well. In my opinion, this is a good measure to keep employees from slacking off
    • X Bonux Vested in 4 years: This means the bonus will be divided into 4 years and X/4 amount will be given to you at the end of each year, mentioning the bonus of 4 years and adding it to CTC which is supposed to represent the cost of one year isn’t a good practice in my opinion.
  • Company Shares: Companies have started providing their shares to employees to make them feel responsible and take initiative. Shares can be provided in two forms

    • Exact amount: Say 1000 shares, so the company will give you 1000 of there shares
    • Amount of shares: The company will give you there shares that are worth that much amount at this point in time

    The amount of shares written in CTC is usually the combined worth of 4 years, which will be provided to you equally say 25% per year but companies tend to divide the share in an un-even fashion (like 10%, 15%, 25%, 50%) to force employes to stay for at least 4 years allowing there shares mature. Aside from the uneven division what needs to be focused on is that the total amount of 4 years worth of shares is included in CTC which is supposed to represent the cost of each year.

A lot of Big Engineering companies are following these methods of hyping up the CTC even if it doesn’t represent the actual amount you will receive in a year which has lead the small startups/companies to do the same because in the end not a lot of people look behind the CTC in the first view which has become the main attraction point for attracting new Developers.

  • Joining Bonus and Relocation Bonus: You will usually get this amount just once when you join the company and will not be present in your second year so technically your gross salary will decrease in the second year. How great is that, right?

In the end, what we need to realize is that the CTC we all see and crave is the entire story. I am including a very informative answer by Kaustav Mukherjee who works at Microsoft on quora about CTC Breakdown of Microsft and more.

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Written by Jai Kumar Dewani who is still figuring out and developing his interest in development :p. Pretty active on twitter, follow me at @jai_dewani