How Companies Calculate Your Salary

The five steps HR follows

1. Match the role to a level. Each job maps to a grade/level (e.g. Engineer I, II, III) with a defined scope.
2. Pull market data. Compensation teams buy salary surveys (Aon, Mercer, WTW) or use sources like AmbitionBox, Glassdoor and Levels.fyi to see what the market pays.
3. Build a pay band. For each level they set a minimum, midpoint and maximum salary range.
4. Position the person. Where you land in the band depends on experience, skills, performance and internal fairness versus current employees.
5. Structure the CTC. The chosen number is split into basic, allowances, employer EPF, gratuity and variable pay to form your cost to company.

1. What CTC actually contains

CTC (cost to company) is the total annual amount the company spends on you — not what you take home. A typical private-sector structure looks like this:

• Basic pay — usually 40–50% of CTC. Drives EPF, gratuity and HRA.
• House Rent Allowance (HRA) — often 40–50% of basic; partly tax-exempt in the old regime.
• Special / flexi allowance — the balancing figure that makes the total add up.
• Employer EPF — 12% of basic, paid by the company into your PF (an employer cost inside CTC).
• Gratuity — ~4.81% of basic, accrued for your future gratuity payout.
• Variable pay / bonus — performance or target-linked; may or may not fully pay out.

Because employer EPF, gratuity and variable pay sit inside CTC but don't reach your monthly account, your in-hand is always lower. See exactly how much with the take-home salary calculator.

2. Pay bands and where you sit

A pay band is the salary range for a level — say ₹10L (minimum), ₹12L (midpoint) and ₹14L (maximum). New joiners and less-experienced people usually start near the minimum; strong, experienced performers sit near the midpoint or above. Companies rarely pay above the maximum without a promotion, because it breaks internal structure.

3. Compa-ratio — the number HR watches

The compa-ratio tells HR how you're positioned:

Compa-ratio = Your salary ÷ Band midpoint (median)

• 1.00 — paid exactly at the market median.
• Below 0.90 — below market; often flags an underpaid employee and a retention risk.
• Above 1.10 — above market; usually reserved for top performers or scarce skills.

Example: if the midpoint for your role is ₹12L and you earn ₹11L, your compa-ratio is 11 ÷ 12 = 0.92 — inside the normal range but slightly below median.

4. Market percentiles: P25, P50, P75

Surveys report pay as percentiles rather than a single average:

• P25 — a quarter of the market earns below this (the low end).
• P50 (median) — the middle of the market.
• P75 — three-quarters earn below this (the high end).

A company's pay philosophy decides its target: cost-conscious firms aim at P25–P50, while companies competing hard for talent target P75 or above. This is why two people with identical skills can be paid differently at different employers.

5. Underpaid or overpaid — how it's judged

• Underpaid: pay below P25 for your role/experience, or a compa-ratio under ~0.85. Strong basis to ask for a correction or switch.
• Fairly paid: between P25 and P75, compa-ratio roughly 0.9–1.1.
• Above market: above P75 or a compa-ratio over ~1.15 — typically exceptional performers or hard-to-hire skills.

Want to see your own position? The Am I Underpaid? benchmark compares your CTC to the P25/P50/P75 range for your role, experience and city, and shows your compa-ratio.