What is Total Compensation?
Total compensation refers to the complete value of an employee's pay, including their base salary or hourly wages and other financial benefits like bonuses, commissions, and stock options.
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Understanding Total Compensation
When you think about it, how much an employee earns from their job is not limited to their annual salary. The term total compensation considers this, factoring in other forms of financial incentives that employees receive. This calculation serves as a tool to show employees closer to the actual value of benefits they receive from working for a company. It also plays a significant role in employee satisfaction. When considering different positions, it can be beneficial for workers to compare total compensation rather than base salary.
In addition to salary, total compensation packages can include benefits like:
- Commissions
- Bonuses
- Paid time off
- Retirement plans
- Insurance (e.g., medical, dental, disability, and/or life)
- Tuition assistance
- Childcare and family planning assistance
- Employee assistance programs
- Gym memberships
- Other sponsored memberships
- Profit-sharing distributions
Total compensation includes not just an employee's salary but also other financial perks, providing a comprehensive view of the overall value of their earnings and helping employees understand the full range of benefits their employer offers.
Calculating Total Compensation
When putting together your total compensation for a given role, you typically start with your base salary. This is usually given as a figure in an offer letter, or, to calculate post-tax, you can find the gross amount of monthly pay from your pay stub and multiply it by the number of pay periods in your working year. Next, assess the value of paid time off (PTO), including sick and holiday pay. Add in any employer-paid portion of your insurance benefits and any applicable commissions or bonuses. Finally, consider any other benefits you might receive, such as retirement benefits, tuition assistance, etc., to get to a final total compensation package figure.
To determine an employee's total compensation, start with the base salary, then add the value of paid time off, employer-paid insurance benefits, commissions, bonuses, and other benefits.
Best Practices for Small Businesses
Small businesses play a crucial role in the employment landscape. While they may be unable to offer the highest compensation packages in terms of salary alone, they can provide other benefits that, through total compensation, will showcase more of the value of working with them. For example, consider offering benefits like solid health insurance, options for paid time off, and performance-based commissions for candidates to factor into their job search. Finding a balance between monetary and non-monetary benefits and learning to communicate the total value of compensation packages will be vital in attracting great employees.
Small businesses can attract employees by providing valuable benefits like health insurance, paid time off, and bonuses.
In summary, total compensation encompasses an employee's complete pay, including salary and other financial benefits. Small businesses, even if they can't offer the highest salaries, can still attract talented candidates by providing a comprehensive compensation package that includes health insurance, paid time off, and performance-based incentives. By effectively communicating the total value of these packages, small businesses can highlight the comprehensive benefits they offer, making their positions more attractive to potential employees.
About the author
Casey Pontrelli
Casey Pontrelli is a multi-talented professional with a background in content creation, branding, and social media marketing. Whether writing for a newspaper, eCommerce website, B2B startup, or a marketing agency, she has taken her strong background in journalism and turned her focus to SEO and content marketing. She’s written about everything from boutiques to cars to small businesses, and enjoys most when she knows her writing has had an impact. When she’s not writing up a storm or creating attention-grabbing social media posts, Casey enjoys hanging out with her partner and three cats, Eddy, Larry, and Marcus, going on long walks in the Green Belt, and, predictably, reading.
