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Whether you are considering a new job, anticipating a salary review or just planning on future opportunities, it's best to consider all elements of a compensation package.
We generally focus on base salary as the essential portion of any compensation package. There is no denying that salary is what we rely on for daily living expenses. It pays the mortgage, car payments, tuitions, groceries, entertainment, etc. If we're lucky, it also helps fund our savings or investment accounts.
However, the additional elements of compensation packages can be equally important if we place monetary values on each portion and view the package in total. The key question to ask yourself is what the cost would be if you were paying for the benefit yourself. It is also important to determine which elements are discretionary and may be subject to change by the employer. They may also be more open to interpretation and should be detailed in writing to avoid confusion and ambiguity.
To determine a total compensation value, add the monetary value of your benefit package to base salary. The following are a few components that may (or may not) be part of a total package and should have a dollar value assigned to them:
Bonus – Is it incentive based, a profit sharing plan or combination thereof? While past performance is no guarantee of future results, determine the average bonuses paid over the past five years for similar positions.
Long Term Incentive – If the position offers any form of stock component (eg. options, grants, employee discount purchase), the long term dollar value can be significant. In addition, some companies / firms offer long service bonuses based on years of service.
Health Insurance – Who and what does the insurance cover? Does it include prescription, dental and vision? What is the co-pay for coverage or your portion of premium payment? Estimate all aspects of annual savings from reducing your out-of-pocket expenses.
Disability/Life Insurance – What would your annual premiums be if you were paying for the level of coverage yourself?
Retirement Plans – What is the employer contribution to 401(k), pension, savings or other retirement plans? For long term planners, the value of this benefit can be substantial depending on the company’s type of plan and their contribution.
Vacation, Personal, Sick Leave – On the basis of your salary, what is the daily rate you are paid? Multiply that amount x the number of days you are given off in a year.
Miscellaneous Benefits – Depending on the employer, other benefits may include:
- Flex Spending – Some employers offer a flex spending program which allows you to contribute for eligible health and dependent care expenses on a tax-free basis.|
- Auto – While many companies have eliminated the vehicle component from their packages, some still offer either use of a company vehicle or a car allowance. Will you personally save money if this option is offered?
- Cell phone/PDA – Is it for business use only or can you use for personal use?
- Association dues – Will you be reimbursed for your professional association dues?
- Gym membership – Some companies will pay full or partial gym memberships to help promote good health. How much would you save if not paying for your own membership?
- Tuition or training reimbursement – If you’re considering additional coursework in your field, will the employer reimburse you?
- Meal credits – If the employer offers a cafeteria lunch program or meal credit program, the value of cutting your out-of-pocket meal expenses should be calculated.
- Child day care – Does the employer offers either on-site day care or a day care credit?
Always be sure that you completely understand the details of a benefit package. Then by doing the math and determining your additional present or future income and out-of-pocket savings, you could find that you’re financial picture ends up being a lot brighter!
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