Shocking Reality of Big Tech Packages in IITs?
Placement season has already begun across most of the institutes in India. Coveted Institutes mainly IITs have already started to make into the headlines due to the big fat packages offered to the students studying in these institutes. 5-10 yrs back we used to read in newspapers about the rare 1cr+ packages but that doesn’t seems to be extremely rare feat anymore. At least if we talk about this years placement season 1cr+ is achieved by quite a few students in many IIT’s. So what’s the new benchmark then? Well, 3cr, 4cr these are the new numbers rolling into the market. Yes you read this right as per reports one student of IIT madras got package of 4.3 crore this year.
Well, in this article we will not be evaluating this package based on the various factors such as if it’s a domestic offer or international because we all understand the concept of purchasing power parity. We also will not be talking about the company which gave this offer and what kind of work would be expected from the student who would be joining the firm. In this article we will be providing you the breakdown of big tech packages which are offered by many big tech giants.
Major Contributors of IITs Big Package:
In general, any CTC offered by company to individual mainly comprises of these factors:
- Base salary
- Performance Bonus
- Joining Bonus
- Stock Options
- Relocation amount
As you can see there are so many factors of CTC, and each of these components contribute significant percentage of whole CTC. Don’t worry we’ll talk about each of these components in detail. To understand better each & every element of CTC mentioned above let’s take an example.
Let’s assume one of your friend shaunak got the package of 1.2 cr. from a reputed organization. This 1.2cr consist of 30LPA as base salary, 4.5 lakh as performance bonus, 8 lakhs as joining bonus, 2.5 lakhs as relocation bonus and remaining 75 lakhs as stock options. Now let’s dive into the details of each component:
Base Salary: Base salary is that component of CTC which you can consider your fixed income which is recurring. In the case of shaunak base salary is 30LPA so his pre tax income per month would be equal to 30/12=2.5 lakhs. This 2.5 lakhs is pre-taxed income. Obviously post tax income will be lesser. Just to let you know base salary itself have various components like basic salary, HRA (House rent allowance), PF (Provident fund), other allowances etc. So based on the tax regime your income tax and PF will be deducted from your pre tax amount and then final post tax money will be credited into your bank account each month.
Performance Bonus: Performance bonus is also known as annual bonus. It’s usually one time payment in a year. In most of the company’s performance bonus is the fixed percentage of your base salary. At the end of the year/financial year based on the company’s and individual performance annual bonus is given. Straight away 30% tax + 4% educational cess means 31.2% is deducted from your performance bonus in form of tax and remaining amount is credited into your bank account.
So its not something which is recurring each month, its one time event. But yes if you see the one year package, performance bonus is significant part of that. In the above mentioned example, 4.5 lakhs is mentioned as the performance bonus.
Joining Bonus: Joining bonus or sign-on bonus is the amount which you get only once. Most of the companies offer this amount to make their overall package more lucrative. Once you join any new organization they offer you the sign-on amount within first few months of your job. But keep in mind its not recurring event. Next year you won’t get it. Sometimes company split the sign on bonus amount in 2 parts and distribute it to the candidate over the span of 2 years. Sign-on amount usually comes with the lock in period of 2-3 yrs that means if you resign before 2-3 yrs you will have to return the whole signing amount to the company as per clause mentioned in your offer letter.
So before accepting the offer letter kindly go through in detail to understand the related clause of sign on amount. Like performance bonus sign on bonus also comes with 31.2% tax deduction. In the above case sign on bonus is 8 lakhs so post tax around 5.50 lakh would be credited into the bank account of shaunak.
Relocation Bonus: As the name suggests, it’s the amount which company offers you for your relocation. If you are staying in city A and your job demands you to move to city B. So companies offer you relocation amount. It’s a one time amount. Now there are 2 ways through which now a days companies offer relocation amount:
(1) They fixed the relocation amount in your offer letter, now as per the candidate choice company will transfer the relocation amount in candidate’s bank. Now it’s upto candidate how he/she utilizes that amount to stay in new city, company will never ask for any receipts and all. (2) Company will have fixed amount for relocation now instead of transferring the amount in candidate’s bank, company ask the hotel preference from candidate and book on his/her behalf. Also some companies ask candidates to book hotels as per their preference and pay from their pocket later on companies reimburse the paid amount upto the relocation amount mentioned in the offer letter.
In the above example, shaunak has gotten the relocation amount of 2.5 lakhs that means if he books the hotel which costs 10K per day so he can easily stay in the decent hotel in new city for atleast (2.5 lakhs/10K=)25 days.
Stock options: In any big tech package the biggest contributor is the stock amount. This is the biggest retaining tool any company uses. Stock options are usually spread for 3-4 yrs. The overall amount which you see in your offer letter is not given to you immediately or on monthly basis. In general 25% of total stock amount is vested at the end of each year. Once the stocks are vested candidate can sell or hold them as per their preference but before vesting they can’t do anything with the stocks.
In the above example shaunak has gotten the stocks worth equal to 75 lakhs that means at the end of 1st year he will get stocks worth equal to 18.75 lakhs in his trading account. Again at the end of 2nd year he will get 18.75 lakhs and this will continue till 4th year. How much % of stocks will get vested at the end of each year this number may varies as per different companies. Also this vested amount is subjected to tax deduction. So 18.75 lakhs are tax inclusive, make sure to deduct 31.75% tax from this amount and then you will see shares worth equal to post taxed amount in your trading account.
So if you breakdown any big salary package mostly you will see shares are making big chunk of that package. So in the above example the CTC which was mentioned as 1.2cr per annum actually becomes 63.75 lakhs if your carefully split the stock portion. Now, the interesting part is that this first year CTC 63.75 lakhs consists of relocation & sign on amount which is not repetitive. So if you see in 2nd year the CTC of shaunak would be 53.75 lakhs.
Now at the end of first year shaunak will get some salary increment and also he might get some stock refreshers based on his performance so this 53.75 lakh may again go high but initially at the beginning if you see this is what the actual numbers are. 1.2cr is not clearly showing the correct picture.
That’s the reality of big tech packages offered in many of the IIT’s. By any means, we don’t undervalue the break down amount even 63.75 lakhs as a fresher in 1st year is commendable. Our main objective behind writing this article was to make everyone aware of this bloating packages. Sometimes people just divide the whole CTC by 12 and expect that pre taxed amount would be this much. This article is written to burst that myth and make fresher’s understand about the basics of CTC so that if given a chance they can negotiate a bit on the components of CTC with HR.
As mentioned above base salary itself have various components & even though in case of shaunak per month pre-tax salary is 2.5 lakhs but after tax & other deductions in hand salary would be in the range of 1.6-1.9 lakhs. To understand in detail more about the components of base salary & how after various deductions in hand salary is calculated one can prefer to watch the video shared below. In this video through an example it is explained how in hand salary can be calculated.
