On fair compensation and pay

Compensation is a sore area for employees, managers, and leaders alike. And over the years, I’ve realised that:

  • employees can’t get enough of what they’re earning — they always want and feel like they deserve more, for both obvious and not-so-obvious reasons
  • managers want to squeeze every penny’s worth from their employees so they can brag about their achievements to the leaders whom they report to
  • leaders are always seeking justification for the money they’re investing in the people, and for reasons I can’t fathom, they find “less” always better than “more.”

If you disagree with the above, you’re probably an outlier like me.

And we don’t care about employee welfare, don’t feel the need to kill them to get the best of them, and believe that the investment eventually pays off.

Fair compensation and pay is a vast topic to cover in a single blog post. And I’m pretty sure there’s a book out there highlighting the best practices and case studies across industries.

One thing about this topic bugs me the most — cost to the company, a.k.a., CTC. I’m not too fond of the term for reasons I can’t even explain. First off, it categories people as a liability (“cost”) instead of an asset or an investment. Secondly, none of the CTC documents reflects what matters most to the employee — cash in hand. Thirdly, it’s insensitive and selfish.

What goes in someone’s mind when they carefully and slowly read the words “cost to the company” in their offer letters? “Mr/Ms New Employee, welcome to our company, here’s what it’s costing us…, and we look forward to working with you.” You wouldn’t ever say that to a person; why bother mentioning it in the most critical and first official document that a potential employee will review? It’s ludicrous!

And if that is not enough, know that the CTC is not what you get in hand. CTC includes components such as insurance, contributions to a government-regulated pension fund, and others mandated by the law. That means you don’t have an option but to include those components in the salary package.

Sure, it’s for the employee’s benefit, but does the employer have to boast about them in the CTC document? Let’s say an employer offers a 30 per cent hike to an employee, and in the document, the latter finds out that 10 per cent of that hike account for statutory components I mentioned above. Tell me, what might be an effective hike? 20 per cent. It beats me why the employer would stick with the 30 per cent narrative when they know what’s going on.

Employees don’t give a damn about the cost to the company. The only thing that matters to them is cash in hand. Period. They can get their insurance and probably a much better deal than the employer’s group insurance. And they can opt for retirement plans that are much more flexible, offering better returns from elsewhere.

Now, if you’re tempted to argue about accounting practices or the legal requirements, save it. I’m not interested in hearing it. An organisation’s obligation doesn’t make it an employee’s obligation. Employers need to understand this aspect.

And I’m not saying fixing CTC is going to resolve challenges related to compensation and pay. Far from it. But it’s a significant first step towards communicating someone’s worth authentically and assuring them that the organisation is investing in them, not treating them as a cost.

I propose a fair and straightforward structure where statutory components are listed as an “employee welfare” benefit that’s got (almost) nothing to do with an employee’s salary. And when the conversation is around getting a raise or negotiating a salary, the focus is on cash in hand instead of the bogus components that the HR department/payroll administrators tend to slap into bloat the CTC.

Why even bother when it’s not true? What makes organisations okay with this level of inauthenticity?

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