Congratulations college graduate! Just when you thought you might be living in your parents' basement forever, you've just scored a couple of job offers. The universe has heard your pleas, and even though your graduation gown is still warm, you've received two job offers. Now, you're in a quandary: which job to accept? What's in the employee total compensation package? While you're in the negotiation phase of the job offer asking questions about the total employee compensation packages shows the employer you investigate important issues, a valuable employee asset for employers.
Early on in a career, with student loans and other financial issues looming overhead, it's easy for college graduates to take a “show me the money” attitude. Perhaps you've struggled, scrimped, and sacrificed over the last four (or more) years and now you're eager to see cash rewards come your way. You've got to take a deep breath, step back and put on your strategic thinking cap. Learning about job/salary offers is a life lesson to serve you for years to come. Know this: Compensation packages come in many forms.
Average Employee Benefits Package
According to the Bureau of Labor Statistics, in September of 2013 the average employee benefits package comprised 31 percent of the total compensation package and the value of the benefits was $9.61 per hour.
Total Monetary Compensation
Before you hastily choose, take the time to do some homework. The main task at hand is determining the total monetary compensation of each salary offer. The total includes the base salary, benefits and perquisites, or perks.
Benefits are usually offered to all employees or to all employees in a certain job category; perks are often more casual (they come and go) and/or discretionary. All three factors comprise your total salary offer and need your attention.
Base salary, the foundation of your compensation, excludes bonuses, benefits and perks; the annual figure is the one on which future salary increases are based. For example, if your base salary is $60,000, and you may receive a 5-8% raise in 12 months, your salary increase in Year One could range $3,000-$4,800.
Salary tiers, grades or formulas determine the base salary increases of some jobs so it is important to know how often performance and/or salary reviews occur in a company for your specific job, and whether they're automatic, predictable or discretionary.
Benefits & Perks
As a professional, your hope is to advance your total compensation as you advance your career; this starts, but does not end, with your base salary. Companies may offer benefits such as bonuses, healthcare coverage, profit sharing, sick & vacation time, tuition reimbursement for advanced education, on-site childcare, etc. Once an employer offers a benefit, you can usually quantify its value even if you do not receive the cash in hand.
Perks are more informal than benefits; you can't always quantify perks and you may only receive an offer for perks when they're needed or available. Some companies strategically used perks to “woo” some recruits. Perks may include free cafeteria and vending services, the freedom to bring your pet to work or discounted services.
Many perks are simply overlooked and underappreciated. For example, can you work from home for a few days if your child is at home ill (rather than using sick days) or can you keep the frequent flier miles and reward points accrued from work travel (thereby funding a family vacation annually with miles & points)? Will the company cover your annual membership fee to a professional organization? Perks can make your work life a little sweeter and you can include them in your total monetary compensation.
Another note: Regardless of your specific offer, be aware of all the benefits and perks a company offers. If you advance in your position within the company you may qualify for additional benefits over time.
The Affordable Care Act requires all businesses with more than 50 full-time equivalent employees to prove full-time employees health insurance or pay a monthly Employer Shared Responsibility Payment on their federal tax return.
While reviewing health plans from a prospective employer look for potential costs such as co-payments, employee-paid premiums, deductibles, and maximum out-of pocket expenses.
Usually a job without a retirement plan in the employee total compensation package is not worth considering unless the salary provided is high enough to allow employees to easily contribute to their own retirement account.
A 401 (k) plan may provide you free money. Find out if a prospective employer makes a contribution to the 401 (k) plan. Most employers match between 50 cents and a dollar for every dollar employees contribute, for up to 3 to 6 percent of their salary.
Pay close attention to the 401(k) plan employer matching contribution. An easy to use 401 (k) calculator helps you see the bigger picture. Place the prospective employer match (example: 50 percent) for every dollar you contribute and the highest percentage the employer contributes (example: 5 percent) and look at the total the calculator shows you'll have in your 401(k) account after you retire.
Example: with an employer matching 100 percent of employees contribution up to 6 percent of the employees annual contribution using an annual employee contribution of 10 percent, with an annual salary of $40,000, with no salary increase factored into the salary, starting with a 401(k) of $2,000 with a 6 percent annual rate of return and the employee works for 42 years the total is $1,185,462.
If an employer only provides a 50 percent match and only up to 3 percent of the employees annual contribution the total significantly declines to $858,550 a huge decrease of a $326,912. This amount of money can make a big difference in your standard of living upon retirement.
Defined Benefits Plan
According to some experts, a defined benefits plan is a better choice than a 401 (k) plan because market performance does not affect a defined benefits plan. The business has all the investment risks and unless the business files for bankruptcy and can't provide funds for the benefits plan, the employees have a guaranteed pension.
The Pension Benefit Guaranty Corporation usually provides protection for defined benefits plans. If the business goes bankrupt, the employees benefits might be reduced, but employees are guaranteed to receive a minimum percentage of the promised benefits.
Offer A Base Salary: $80,000
Offer B Base Salary: $75,000
To simplify matters, we'll assume that both job descriptions for Offer A and Offer B are equal i.e. doing the same work in the same locale.
Offer A has a base salary of $80,000 in the total compensation package while Offer B has a base salary of $75,000 in the total compensation package. If the job candidate only considers the base salary of the two offers, then Offer A “wins” by $5000 (and in Year Two any raise is based on the higher base). However, when the job candidate compares the benefits and perks of both offers and quantifies the total monetary offers, the offers change dramatically.
Offer A includes a $5000 sign-on bonus paid out in parts – half in Year One and half in Year Two. (It's a typical retention strategy and spreads the company's investment over two years instead of one.) Offer B includes a recruitment bonus of $4000, paid in full at hiring.
Company A has a dental plan valued at $1200 annually; Company B does not offer a dental plan. However, Company B's medical plan requires no co-pays, saving the average employee $1500 per year. Further, Company B offers up to $8,000/year in a tuition reimbursement program for advanced degrees. Company B is also offering the job candidate early participation in a stock option plan that, minus a small monthly payroll deduction, has a value of approximately $4125 within the first year.
Finally, Company B provides free transport shuttles to/from a central location and free parking at the pick-up site. The annual cost of commuting for the candidate is $2,700, a savings if the candidate works at Company B. Company A offers a discount program for subway tickets and gas coupons valued at $1,000/year.
Year 1 Offer A
Base salary: $80,000
Health Benefits: $1,200
Other Benefits: $1,000
Year 1 Offer B
Base salary: $75,000
Health benefits: $1,500
Other benefits: $12,125
As you can see, the offer from Company B is higher than the offer from Company A. You can use a simple worksheet to compare offers.
You'll receive unique job offers along your career. What you value in an employee compensation package may vary from what other job candidates value most. Your ranking of these offerings may change as your life situation changes.
A Sampler of Benefits
Future salary reviews/increases
Cash bonuses (sign-on, relocation, loan payoff etc.)
Sales incentives & commissions
Relocation services/moving allowance
Meal & travel allowances
Healthcare coverage (medical, dental, vision, etc.)
Flexible spending accounts/dependent care
Disability & Long-term care insurance
Equity or stock options
Paid holidays & vacation time; unpaid leave
Paid sick days
Child adoption assistance
A Sampler of Perquisites
Phone, laptop, other work tools
Flexible & work-from-home schedules
Transport shuttles & parking
Professional membership dues
Luncheon & speaker clubs
Tickets: Sporting events, entertainment, etc.
Frequent-flyer miles & reward points
Reward trips for sales top performers
Corporate “freebies” & discounts for travel, vacations, leisure activities etc.
Wellness programs (gym, yoga, etc.)
Matching plan for charitable gifts
Pets allowed at work; free dog-walking & vet services
Matching plan for charitable gifts
Take the time, each time, to evaluate the offered employee total compensation package before making a decision. When it comes to compensation, you'll want to see and understand the total package.