A Logic for Compensation Package

Introduction

The terror strikes on Mumbai has no doubt shaken the conscience of the nation. Our insecurity, vulnerability and level of reaction preparedness has left everyone wondering whether they had made the right choice in thrusting power in the hands of individuals who appear so self-obsessed in using the national property for personal benefit. Well the tragedy of self - obsession did not stop with the death of terrorists, but it went further when each politician went on announcing compensation packages for the brave officers. From where did they get so much money from? Then why these people were not taxed under the IT Act? And if its the public money they were donating, who granted them the authoirity to do so? And most importantly how did they arrive at the number they wish to grant? All this brings out a gaping hole in the compensation policy and therefore the motivation for this article. 

I want to give a simplistic mathematical model that will not only guide the politicians/leaders in arriving at a number that shall be in accordance with the action of the awardee but also make the package a transparent property that can be scrutinized logically by the public they represent. This way there is an enhancement of accountability and lucidity is induced in the compensation package system. 

Assumptions and scope

The model follows two primary assumptions. They are:

1- The operation involves the use of millitary or police personnel.

2- The awardee is killed in operation.

Variables identification

The falacy in the current compensation awarded by the Govt. or the politicians to be precise is that they are just a random amount spoken at the spur of the moment. So the intitial problem is to isolate and define some variables that must be borne in mind while awarding these compensation packages. I state them below:

1- Gain of operation [G]

This conatins two sub variables- the first sub - variable is the richest survivor at the end of operation. Well this is not to state that the poor need not be saved. Moreover while firing away the awardee will not be in a conscious position to determine and judge the economic state of the ones he will be saving. But to just give a tangible reward for his bravery, the richest survivor of the operation is taken to determine the value of the operation. I argue and state that half of the annual income of the richest survior must be awarded to honour the gallant personnel. This is because I have taken an implicit assumption that the money shall be deducted from the income of the richest survivor. So one must leave the survivor with some amount too. 

The second sub variable is the costliest property saved after the operation. This is self explanatory. If its a partially damaged building then property saved equals the complete property cost in current market price less the damaged part of the same. If its undamaged single undivided property, I argue the complete property price must be awarded. The logic is that the gallantry of the awardee has stopped the owner of the property from bearing renovation cost of the property to total loss of the same.

Hence on a whole it can be stated that compensation awarded is directly proportional to the gain in operation.

2- Time [T]

The third variable is "time of operation". Needless to say the higher the time of operation, the more the resources used and more liklihood of damage to life and property. According to experts, the response to an attack must be within 30 mins of the attack. Any reaction time that is greater than these stipulated 30 mins provides a double advantage to the attacker namely aiding in planning and grabbing strategic positions for engagement. Hence compensation package awarded must be invesely proportional to the square of time spent in operation. 

3- Family [F]

Last but not the least the survivors of the family of the awardee must be taken into account. They may have lost a family member who was an earning member. So the last drawn annual income of the slain personnel must be given  aggregated to the number of years left till another member of the family (preferably the child irrespective of sex) is able to support the family after completion of education. Usually this age can be taken as 25 years (taking cue from the ancient Ashrama stage that puts Bramhacharya ashram meant for education till age of 25 years). The logic is not to allow the standard of the family to depreciate in absence of the earning member. 

Mathematically speaking

Compensation is represented as C

1- C is directly propertional to G 

=> C is directly propertional to [ i/2 + (p - d)]; where i = the total income of the costliest survivor, p = total cost of property in current market price, d = damaged cost of property in current market price

2- C is inversely propertional to T (2) [ read it as T squared]

3- C is directly propertional to F

But F = (25 -n) x; where n = the current age of the eldest born, x = the annual income of the deceased at the time of death.

=> C is directly proportional to (25 - n) x

Therefore the final equation is: C = k [2p-2d+i][x(25-n)/t(2)]; k = constant

The constant k if analyzed in terms of units comes as time/Rs. It means the amount of time that is spent to generate a rupee in this country. So it can be argued that constant k = GDP  growth rate of the nation at the time of operation. 

Conclusion

A democracy survives when people are taken into confidence by the political class to win confidence. Hence a rational expnditure structure is a must for one is handling public money. So this is a small effort in my part to devise a model for compensation packages that our bravehearts so truly deserve. Criticisms to improve the model are welcome.