Monday, March 04, 2013

Difference between Variable & Fixed Pay

Question :

Raghav Sir,

My query is basically with respect to the demarcation between fixed and variable pay.Often during salary negotiation interviews the HR is keen to know only about one's fixed pay out of total CTC rather than considering variable pay too.They state that the hike according to industry standards will be given on fixed pay and variable would not be considered as that depends on company to company. So is a hike always given on fixed component or on the total CTC? This is because I am presently having two offers in hand both with a near about similar fixed salary but one has a very large variable component than the other which is creating a confusion in my mind as to which offer to accept?

Raghav Replies :

Generally Salary has 2 components - one being fixed salary and variable pay.  As a thumb rule for executive and non-managerial positions it is in the ration of 80 : 20% of the CTC. For higher positions the VP component can be as high as 40% of the salary while fixed component could be 60%

If you are confident of achieving the targets you should go for the offer which gives you max Variables, while if you feel it is risky accept the one which has lesser VP

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