Pay for performance

Once offered as a way of dodging tax, perks are today being used to retain employees and increase productivity.

Narayan Krishnamurthy        Print Edition: September 4, 2008

Before the introduction of the fringe benefits tax (FBT), perks were offered by employers as a way to lure talent. Sadly, that’s not the case today. There’s been a lot of debate and discussion over what exactly constitute perks, what falls within the salary, what cost to company really means and so on.

Employee benefits fall under five heads—base, retirement benefits, flexible benefits, variable benefits and stock options. Says Sonu Iyer, tax partner, Ernst & Young: “Perks account for all that is outside the CTC that is taken into account when fixing the salary benefits of an employee.” However, perks are not offered to all employees. Says Dony Kuriakose, director, EDGE Executive Search: “Perks are primarily extended to performing employees or those holding key positions crucial to the organisation.”


Several companies offer cash reimbursements as a perk. Contrary to popular perception, it is not. What it is, in fact, is a tax dodge. That’s why most large companies in the organised sector do not offer such “incentives”. For employees also, cash can become a sticky problem if the cash component is significant—and is hoarded. Stocking cash is a serious offence and one can face income tax queries on charges of hoarding, not declaring income and not paying tax on income. The penalties can be an issue in itself. So, if you are being enticed to take a salary that offers a significantly higher cash component, it could pay to avoid it.

Companies understand that in order to retain talent, they must offer performers perks that bring in value. Yes, of course they continue to offer the standard company car, house and so on. However, more and more companies are getting innovative even about these standard perks. Homes are offered to employees putting in pre-defined number or years at work; a leased car is offered instead of a company car for better tax efficiency. Then there are the extras like birthday and anniversary dinners with the company chairman, club memberships for senior employees and gym memberships for middle level employees. “Employee stock options are still incentives for startup firms and many employers foot higher education costs of employees’ children,” adds Iyer. Other companies offer redemption coupons for household goods.

In certain financial and technology sector companies, perks in the form of employee development is offered; employees can enrol for courses that will help them develop skills and even add to some existing skills. Unlimited healthcare for employee and family, higher leave travel assistance (LTA) and premium club memberships are other softer perks that have been modified with changing work profile. Some unlisted firms are also allocating shadow stock units, which is then valued based on the company ROCE (return on capital employed), profits and growth. Employees are then paid equivalent bonuses depending on the timing of bonus.

“It is worth considering the extent that employees’ trade pay for perks and there are many who do it these days when they see a larger role for themselves within a company or industry,” says Priya Ranjan, director HR, Bharti AXALife Insurance. Such benefits are seen in companies that take it upon themselves to work towards employee development and do not treat it as a perk.

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