Total Compensation Statement

August 29, 2012      By Ultimate Software

With the Labor Department reporting that employers posted the highest number of job openings in four years and the July jobs report showing more jobs were added than expected, it seems that the job market is finally beginning to recover. With a recovery, though, there will come a renewed competition for skilled and knowledge-based workers.

With that being said, I pose the following question:

As an employee with an annual salary of $50,000 would you switch to another company, doing the same exact work for just $60,000?

If you are like most people, you might jump at the opportunity. After all, a 20% raise in salary far exceeds the average 2.9% annual salary increase that US employers are expected to give in 2013. However, if you jump ship only taking into account annual salary and not total compensation you might be in for a rude awakening.

Let me take a moment to explain why. By definition, total compensation refers to the sum of cash, benefits and non-cash allowances provided to an employee. While the definition may seem simple, many employees fail to completely connect with its real meaning. For some people it is a lack of understanding, but for most it is simply a lack of visibility. Whatever the case, all employees should have a very clear understanding of their total compensation.

So going back to my question, what if I said that on top of your salary, your current employer provides a 10% bonus, matches 50% of 401k contributions, contributes $400 to your $500 monthly medical and dental premium and provides two personal days on top of your two weeks of annual vacation time? Compare that to the other company that gives a 5% bonus, will only match 25% of your 401k contributions $250 of your $500 monthly medical and dental premium and provides no additional personal days on top your two weeks of vacation time.

Still think the answer to my question is obvious? Given the visibility to all the components of your total compensation package, then you can easily see your current employer provides you with an annual total compensation of approximately $62,285 vs. the other employers $66,750. Still willing to jump to another company? Maybe. Maybe not.

How can you help an employee understand their total compensation? By providing Total Compensation Statements you can help reduce turnover and avoid the cost of replacing an employee, which Towers Watson estimates at 2 ½ times an employee’s annual salary. I am not a finance guy, but spending a few dollars a year to provide all employees with a Total Compensation Statement to avoid the costs of unnecessary turnover seems like a great return on investment.


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