Shilputsi in the News
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Take Home Benefits : Outlook Money - September 30, 2004

A smart compensation package is about more than money. What are the non-salary benefits on offer, who gets them, and how to negotiate the best deal.

Udayan Ray With Archana Rai

Desired Salary: $185,000 a year plus stock options and a Michael Ovitz style severance package. If that’s not possible, make an offer and we can haggle." Urban legend or job application of a 17-year-old, it only goes to show that when it comes to salary packages, restraint is conspicuous by its absence.

Now, even if you drive a hard bargain and manage to get that dream salary on paper, does it really do justice to your financial needs? Since companies today are willing to let employees draw up their own salary packages, you could well structure the ideal package. But before you do, it’s vital that you understand the benefits offered, what you need, and the tax implication of each salary head. While most benefits are taxable as salary income, opting for them ensures that specific needs are met. Says V. Shri Ganesh, Catch Consulting: "Non-monetary elements of a pay package are important; they make a difference to your quality of life."

Ignoring the benefits component of your salary could prove expensive. Says Arun Tadanki, President and MD, Monster Asia: "For senior managers, benefits comprise 15 per cent or more of gross pay." That’s at least Rs 1.5 lakh on a salary of Rs 10 lakh per annum. And with performance-linked variable pay now constituting as much as 25 per cent of the compensation in senior and top levels, you need to pay much more attention to benefits.

Over the past decade, the structure of these perks and benefits has changed drastically. "Companies prefer not to have complex compensation structures," says Purvi Sheth, consultant, Shilputsi, a Mumbai-based human resource consulting company. So, instead of trying to design complicated packages that can slip through the tax net, companies are becoming more transparent. And this spells the end of benefits like credit cards, furnishing and white goods maintenance, and allowances for household help, clothes, books and periodicals, furniture and household appliances.

Structuring benefits

"You need to figure out what you need and not get influenced by what others are getting," says Sheth. Also, different companies have different compensation structures. "It is difficult to add benefits to an existing structure. One way of making the correction is to make a request at the time of annual increments. However, unless there is a change in work level or some other significant reason, most companies will not add heads to a prevailing system," adds Sheth.

Things are better with a prospective employer. At the time of negotiation, you can set out your requirements and specify how you want your salary packaged. It is important to let the company know what benefits would make or break the deal.

Several companies are now allowing employees to choose the perks and benefits they want, as long as they remain within the stipulated cost to the company. This means that you can structure the benefits so that they meet your needs. For instance, if you have aged dependent parents who need specific medical care, you can ask that the company pay for this. Remember, however, that most companies provide a large number of benefits only to employees at senior levels. Also, many of these benefits are available more in traditional sectors like manufacturing and not necessarily in new ones like IT.

Whether or not you have the latitude to choose all the benefits you want, it’s worth knowing what’s on offer. So, if you decide to move to another employer or if your present company changes its compensation structure, you can make the most of it.

What’s on offer

Besides transparency on the tax front, companies are trying to move to consultant packages where benefits are minimal, and to avoid benefits that translate into depreciating assets. But there’s still plenty to choose from; just make sure you understand the tax implications of these.

Sign-on bonus. This is a one-time cost to lure employees to join a company, and offset any loss that they might incur when leaving their previous employers. The bonus is taxable as salary income.

Retention bonus. Companies are increasingly turning to retention bonuses or ‘stay pay’ to entice employees to remain even through rough patches. The bonus percentage varies, depending on your tenure with the company and your position. The bonus is a step-up payment, usually on an annual basis. So, if the bonus is, say, Rs 10,000 a year, you will get Rs 3,333 at the end of the first year, Rs 6,666 at the end of the second and Rs 10,000 the third. Remember that you will have to wait till next year to get this year’s bonus, and that the bonus is fully taxable as salary income.

Soft loans. In the past, companies offered employees loans at concessional rates. More recently, however, with the amendment of tax regulations, the savings made from such loans (market rate minus the concessional rate) have become taxable at the applicable rate. Companies now prefer to tie up with financial institutions, which offer group loans at concessional rates.

Soft loans from the employer (other than home loans) may be taxed, but still work out cheaper. However, if the loan is from a financial institution that has tied up with your employer, the soft loan is tax-free.

Club membership. To senior and top manages, companies often pay for membership to elite clubs. The amount paid as membership fees is fully taxable.

Vehicle maintenance. Companies may either bear the entire cost of maintaining your car or only cover expenses like servicing and replacing spares up to a limit. This benefit is tax-free and usually available from middle management level onwards and the sums rise as you move up the organisation. And the benefit is even more useful if you have a big car.

Furnishing allowance. Other than old-economy manufacturers, few allow this benefit. But if it is offered, it generally provides for furnishings and furniture up to an annual limit. This amount is fully taxable.

Medical cover for parents. Most companies cover only immediate family. Check if this can be extended to cover parents’ medical expenses up to a limit. In fact, some companies offer unlimited expense cover. This is particularly useful if you have aged parents with ailments. Some large auto and pharma companies offer this benefit by tying up with hospitals or clinics that offer substantial discounts to the corporates. Reimbursement of medical treatment is exempt up to Rs 15,000 a year.

Insurance premia. At senior levels, companies may offer to pay the premia for life and health insurance covers. This means you can take a larger cover than you otherwise would have. For instance, instead of taking life insurance cover for Rs 30 lakh, you can take a Rs 1 crore cover if your employer pays the premium. The same holds true for health insurance. What’s more, many companies extend this benefit to cover your spouse and up to two children. But you cannot claim any tax breaks, as it is your employer who is paying the premium.

Study sponsorship. Companies that do not have training infrastructure sometimes finance training courses and executive MBA programmes. At very senior levels or extremely specialised positions, a company may offer to finance training (especially management development courses) at top institutes in India or abroad. The flip side is that you will have to sign a bond stating you will stay in the company for a specified period after the course. The study sponsorship is tax-free.

Holiday expenses. Some companies agree to bear holiday travel expenses, especially airfare, within specified geographical areas. This benefit is fully taxable, but useful if you have children or close relatives abroad.

With Naazneen Bhasin And Vishal Chopra