Summer is upon us, and you know what that means: soon 2018 planning will begin. Perhaps you’ve been considering providing employees with a total compensation statement. These can be a way of giving employees a more complete picture of the benefits you provide, which may lead them to appreciate you more as their employer. At least, that’s the basic goal.
While it’s true that a total compensation statement (also known as total rewards statement) can be a useful tool, there are some potential downsides. Here you’ll learn about a few pitfalls that may ensnare the unwary.
Three Broad Categories
A total compensation statement should reflect all of the financial benefits an employee receives from an employer, in a clear and easy-to-read format. The statements can be divided into three broad categories: pay, benefits, and perks. For this purpose, let’s assume benefits include insurance and retirement plans, and perks include everything else.
Pay should, of course, include the employee’s base pay as well as bonuses. You may want to include under this heading the value of any paid time off, such as sick leave or vacation time.
If this time is already reflected in the employees’ base pay figure, don’t include it again under a separate heading—it will appear to the employee that you are trying to get credit for more than you should, because the paid time off will be, in effect, double counted.
In the Benefits category, include the employer portion of insurance premiums for health, life, disability, dental, vision, or any other insurance program you have for employees and for which you pay. Don’t include the employee-paid insurance benefits, because this statement is supposed to show what you’re doing for them, not what they’re doing for themselves.
Be sure to include a separate line item for each retirement plan (401(k), pension, profit sharing, etc.) to which you contribute on the employee’s behalf.
Perks is often the category with the most line items. This is where you can name everything from stock options to use of a company car to the value of an onsite fitness club. Don’t forget the more obscure offerings, like parking or transportation vouchers, tuition assistance and relocation cost reimbursement.
You may wish to call out those perks that are difficult (or impossible) to quantify financially. These could include flex-time, weekly company-provided lunches, or other extras.
Be cautious about calling reimbursements—for company travel, for example—a benefit. Employees who travel are merely being reimbursed for money they spend, not coming out ahead.
Watch Out for Potential Pitfalls
There are a few ways your total rewards statements may fail to get the results you want—and even backfire. For example, employees may see the statements as a subtle way of telling them you won’t negotiate on salaries. They could also use the statements as a way of calling you out on benefits they don’t need or want.
For example, someone who drives to work may believe you’re inflating the value of his benefits because you provide a transit pass he doesn’t use. Employees who compare their statements may notice if a coworker receives a higher health insurance subsidy, for family coverage compared to individual coverage, for example.
The worst case scenario is if information presented on the total compensation statement is inaccurate, because this can cause a serious rift in the employer/employee relationship. As in most interactions, trust is critical and can be quickly eroded—so be sure what you say on the statements is accurate.
If you’re interested in preparing total rewards statements, help is available. A quick search of “total rewards statements” yields many resources, including the large employee benefits consulting firms and many small ones, too. Whether you prepare them yourself or hire someone else to do it, make sure they:
- Are interesting to look at, using color and graphics, and are arranged in a way that makes sense.
- Are delivered with the right amount of preparation, so employees know beforehand to expect them; delivered in a variety of formats; and, if possible, scheduled for release around a corporate event.
- Take an employee-centric tone by seeing them through employees’ eyes. At the center of this effort should be this question: how will this statement help my employees? The answer could guide what you include and how you arrange it.
- Are accurate. Remember, any inaccuracy on a total compensation statement may cause a reaction that is at the complete opposite end of the appreciation scale from the one you desire.
A statement showing all of the benefits you provide can allow employees a better understanding of how much money is actually spent on them. Without it, they may think only in terms of their weekly pay. Seeing all of it in one place can be an eye opener, and a way to improve morale and loyalty. You have a few months left before 2018; get started to make the most of your new total compensation statements.