Compensation

The Basic Components (and Pitfalls) of a Total Compensation Statement

At the end of the day, most employees’ pay and benefits extend far beyond the base salary. Many employers are beginning to present total compensation statements (also known as total reward statements) as a means of showing employees how the organization is investing in them.

What to Consider Including

A total compensation statement may include:/p>

  • Base pay
  • Bonuses, including any onetime bonuses for that year
  • Value of vacation/PTO/sick days, and any other paid leave
    • Note: Employers should be careful not to double count this item if it’s already counted in the base pay figure. If this is the case, it might be better to quantify the PTO benefit, but not assign it a monetary value.
  • Value of employer-paid portions of insurance plan premiums, such as:
    • Health insurance
    • Dental insurance
    • Vision insurance
    • Life insurance
    • Short-term disability insurance
    • Long-term disability insurance
  • Employer contributions to the employee’s retirement plan, such as a 401(k) or pension
  • Stock options
  • Value of Employee Assistance Program, on a per-employee basis
  • Annual usage value of an employee’s company car (and associated benefits, such as maintenance costs) OR value of the employee’s use of a shared company vehicle
  • Value of any other benefits offered, such as:
    • Fitness club membership
    • Cell phone service
    • On-site child care
    • Free or discounted public transportation or parking
    • Tuition assistance
    • Home office benefits, such as Internet service
    • Company-sponsored discounts
    • Per diem payments when traveling
  • A list of other perks, even those that do not have a quantifiable component, so that the total compensation statement shows the whole picture. This might include benefits like flex time or on-site facilities available for employee use.
  • Other onetime benefits, such as covering relocation expenses

Naturally, not every employer will offer all of these benefits, and even those who do will not offer them to every employee. A total compensation statement must be personalized for each individual situation.

Should Employers Create a Total Compensation Statement for Employees?

Putting together a total compensation statement for employees can serve several purposes. It can:

  • Show employees the total investment in them from the employer perspective.
  • Allow employees and prospective employees to compare their total compensation “apples to apples” with other offers, rather than focusing solely on the base salary.

However, employers should also be aware that creating a total compensation statement for employees has the potential to backfire if not handled well. There are many ways this can happen:

  • Employees can perceive such a document as a thin rationale for foregoing raises or an employer’s way of effectively saying that there is no room for salary negotiation.
  • Double counting any item can make the document look forced and inaccurate. Unfortunately, double counting is very easy to do. Here are just a few examples of double counting on a total compensation statement:
    • Counting vacation pay (or any other leave pay) on top of salary, when the pay is not actually extra. (A better option is to list the benefit, but not quantify it unless it truly represents an amount paid above the base salary.)
    • Counting certain reimbursed expenses (such as travel costs) as though they are a benefit, when in fact the net gain is zero for the employee
  • Employees can feel that the document is misleading in these scenarios:
    • When the statement lists items that the particular employee cannot partake in or does not want, such as parking discounts for someone who takes public transportation. Doing this makes the list appear inflated and disingenuous.
    • When the statement lists a benefit that has not yet been paid or that the employee is not yet eligible for, such as health insurance or 401(k) contributions before they’re eligible to earn them.
  • Employees may also feel the statement is not a true representation of the big picture if it does not take into account expenses incurred. For example, there are often 401(k) fees the employee must sacrifice out of their contributions, but this lost money is not taken back out of the total compensation figure.
  • Providing a total compensation statement can encourage the idea of comparison. It can quantify disparities between different employees. For example, an employee with family coverage for their health insurance may get a higher health insurance benefit than an employee who does not have a family. Such differences can lead to frustration.
  • The total compensation statement can also encourage employees to look at the other costs on their time and pocketbook. Salaried employees may feel as though their overtime is not valued when they think about the big picture.
  • If there are any inaccuracies on the statement, it can erode trust in the employer—HR in particular.
  • Some employees will also see the statement as a negotiation tool—and potentially use it to request that unwanted benefits be cut in favor of a higher salary. The total compensation statement allows them to point out that the cost to the employer is the same in both scenarios.

As you can see, employers should be careful when presenting this information. While it has potential to be a useful tool, it also has high potential to have the opposite effect.

What’s your take? Does your organization provide total compensation statements? Did you get feedback from employees?

This article does not constitute legal advice. Always counsel with specific questions.

 


About Bridget Miller:

Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.