When you are considering a new role or — better yet — trying to decide between two job offers, you may be tempted to take the job that offers the highest base salary. But not so fast. To truly assess an offer, you'll need to understand total compensation.
Total compensation consists of many different elements, large and small. From the quality of the health insurance package an employer offers to perks like free snacks and lunches, the true value of an offer lies in the details of the total package.
Here's how to evaluate your total compensation:
What is total compensation?
Total compensation is calculated by combining your base salary — the set amount of money you are paid by your employer on a routine, typically annual, basis — with the value of all other financial benefits you receive, including (but not limited to):
- Cash bonuses or grants
- Health insurance for you and your family
- Health Savings Accounts, and any contribution or match from your employer
- A qualified retirement plan, like a 401(k), 403(b) or 457 plan, plus any match or contribution
- Profit-sharing, stock purchase or grant programs
- Paid time off (also known as PTO), which might also include sabbaticals
- Student loan repayment programs
- Pre-tax benefits, such as pre-tax purchases of train or bus tickets
- Free food, clothing or other items.
Knowing the breakdown of your total compensation can help you understand the value of your entire compensation package, and the value of your work to your employer.
Calculating the value of non-cash compensation
Calculating your total compensation can be tricky, especially if you're trying to factor in perks that are difficult to express in dollars and cents.
For example, if you work at a company that is notorious for having great employee perks (think Silicon Valley tech behemoths, like Google), how do you factor in the amount of free food, coffee, snacks and massages that you're receiving as part of your compensation?
Even if your employer doesn't provide free avocado toast or nap pods, how do you measure the benefits of having a premium health insurance plan (where all services are free or nearly free) or an employer-sponsored gym membership?
There are several ways to do this:
- Calculate the cash value of each benefit.
The first is to calculate the cash value of the individual benefit. For example, if several companies each offer a 401(k) program, but one matches your contribution up to 3% of your salary and another simply contributes 5% of your salary, even if you don't contribute anything, then the second company's compensation is better by 2% of your salary. If you're earning $100,000, that's an extra $2,000 per year that gets put into your 401(k) account.
- Compute the value of a single day of work and multiply it by PTO days.
When it comes to paid time off, you can take the total amount of your compensation and divide it by 365 to come up with the value of a single day. Or, you can compare the total amount of PTO that each company provides, say 15 days from one company and 12 from another.
- Consider total compensation.
You can also focus on your total cash compensation, salary, commission (if applicable), bonuses, and any stock options or grants and consider your other benefits as perks of working for that particular company. In this scenario, benefits offered would be sorted into categories like "commuting expenses" and HSA contributions, for easier comparison. You can also ask your employer for a total rewards statement for further clarification on the breakdown of your compensation package.
When evaluating total compensation, make sure you compare what you're being offered against the benefits that are most important to you, including:
- Maternity (and paternity) coverage. Be sure to ask how many weeks are paid, whether PTO must be used first, and when other insurance coverage kicks in
- Infertility treatments. Ask what are the out of pocket costs, if any
- Flexible working arrangements. How good is the company at offering and implementing them?
- Adoption assistance
- Emergency assistance, whether in the form of a cash grant or salary-linked short-term loans