Benefits and Compensation

Pros and Cons of Total Compensation Statements

A total compensation statement is something many employers opt to provide to employees to quantify and communicate the monetary value of their full compensation package. Also known as a total rewards statement or a “hidden paycheck,” a total compensation statement would include base pay plus bonuses/incentives, and also could include the quantified value of benefits like PTO, health insurance premiums paid by the employer, all other insurance premiums paid by the employer, employer retirement plan contributions, value of employer-sponsored equipment (such as phones, computers, etc.), value of memberships or discounts offered by the employer, and more.

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Some employers also use this opportunity to list non-quantifiable benefits and show them alongside the total monetary value of the others. The key is that each total compensation package should be as tailored as possible to the individual employee, making it accurate for them.

Pros of Providing Total Compensation Statements

Here are some of the benefits of providing total compensation statements to employees:

  • They can show the employees the true cost of the entire compensation package, which represents the investment the organization is making into the individual. It allows them to see the pay and benefit package all in one place.
  • It can be a way for employees to see how their compensation compares to the market. This can be a benefit, assuming the total compensation is in alignment with market rates. This fact is communicated to the employee via the total compensation statement, which can be useful when they may feel compensation levels are too low when looking only at the hourly rate or base salary.
  • They can be a tool for HR and managers to communicate the value of the benefits on offer, which, as we just noted, is often overlooked when employees are thinking about compensation rates.

Cons of Providing Total Compensation Statements

Here are some of the drawbacks to providing total compensations statements:

  • They may cause employees to feel like it’s just a ploy to try to not give raises as often. It may be seen as a way to forestall employee negotiation for higher base pay by trying to prove it’s not necessary.
  • Employees may feel the total compensation is not accurate. For example, they may see benefits listed and quantified that they’re indifferent to or do not utilize. In those cases, it may make the total compensation feel artificially inflated and make the employee distrust it.
  • Employers need to be acutely aware that the total compensation statement should be accurate. Any inaccuracies could negate the validity in the eyes of the employee and lose any benefit of putting the statement together.

Tips for Employers Creating a Total Compensation Statement

If this is something your organization is interested in, here are a few tips:

  • Ensure all figures are accurate and presented clearly. The information should focus on the employee.
  • Only include the values of benefits that the employee either directly partakes in, or is definitely eligible and able to partake in.
  • Don’t double count things like PTO. For example, if the individual’s salary is already listed as an annual rate, the pay during PTO doesn’t get added on to that salary, so it shouldn’t be quantified as a separate dollar value in that case. It’s still fine to list the benefit, just don’t double count the value unless the employer is happy to pay it out even if the employee doesn’t take the time off.
  • Consider incorporating net benefit amounts. This makes the statement more accurate by taking into account the expenses involved for the employee for any particular benefit. This will, of course, reduce the total compensation listed—but employees may feel it’s more accurate and be more inclined to trust the information.
  • Always do due diligence before communicating total compensation. If the organization pays well below market rates (even after factoring in benefits), this could highlight that fact and prompt employees to do comparisons. Think through the goals and what the organization is trying to achieve with the total compensation statement before proceeding. Think through the message it will send.
  • Be ready for the employees to use the total compensation statement as a negotiation tool.

What has been your experience? Does your organization provide total compensation statements?

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.