Explaining Wages Versus Total Compensation to Your Employees

May 28th, 2014
Written by: TPO

A version of this article was originally prepared by TPO for one of its clients, an industry educational foundation. 

Chances are when asked about their compensation, your employees will respond from the perspective of their base pay – what they see in their paycheck. Base pay is the amount per hour or per year that employees are paid for performing their jobs. Base salary does not include any bonuses, benefits or perks associated with the job—it increases with raises or adjustments, but remains the yearly or hourly wage paid.

When you communicate your employee’s wages in the context of total compensation, chances are they will be surprised to learn their true worth and value to your company. Total compensation can be defined as all of the resources available to your employees, which are used by you to attract, motivate and retain employees. Studies show that benefits can comprise up to 40% of a total compensation package, but there is more:

• Salary/hourly rate 
• Bonuses 
• Medical and dental benefits 
• Disability insurance 
• Life insurance 
• Flexible spending accounts 
• Paid leave (vacation/sick/PTO, holiday, personal, bereavement, military pay, jury duty, etc.) 
• Employee assistance programs 
• Retirement benefits (401(k)/403(b), pension plans, etc.) 
• Stock options 
• Educational assistance programs 
• Relocation expenses 
• Perks (meals, gym memberships, cell phones and services, company discounts, etc.)

One of the most efficient and effective ways to communicate total compensation is with a personalized total compensation report. Here are some tips:

Include all benefits, incentives, and performance pay in the statement.
Your total compensation can and should include a broad array of benefit and incentives for employees. Start with the basics of traditional benefits like medical, dental, vision, and life. Then work towards supplemental benefit options that are low cost, but have a big impact on employee well-being (short and long term disability insurance, etc.) Then include your unique perks, such as company wellness incentives, and special discounts or programs aimed at retaining employees and supporting work life balance.

Use a total compensation statement builder to make it personal.
There are a number of ways to present total compensation to your employees. Find out what is available from your payroll provider and benefits administrator. Statements are commonplace; even outsourcing is inexpensive. Most importantly, personalize the statement so that each employee gets a well-organized overview of his or her compensation, and review carefully with your internal team to make sure that the message is clear enough for all levels of employees.

Focus on employee retention, morale and recruitment.
Don’t underestimate the mileage you can get out of communicating your total compensation offering with your employees. You can:

• Retain valuable employees – transparency can help to reduce turnover. Showing your employees just how valuable their skills and time REALLY are will make them feel more appreciated and increase job satisfaction. 
• Sway job candidates – job seekers consider several defining factors when weighing job offers – arguably, the most important of which, is compensation. Providing a detailed compensation report can help you lure a candidate on factors beyond base pay. If you put a total package out there, SHOW IT! 
• Performance reviews – total compensation reports can be especially motivating for employees when used during performance reviews. Use a report to outline any raises and additional benefit costs that may be realized in addition to outstanding job performance.

Communicate total compensation often, use multiple mediums, and make it personal.
Once a year is not enough for talking about total compensation. If you are in an industry where you face growing skills shortages, you should actively use total compensation as a retention and morale building strategy – to do so, you need to communicate often throughout the year. Use multiple mediums; during team meetings, performance reviews (when you can discuss one on one), and even social networks.

Speak loudly and transparently to all the perks of working for your company, and let employees experience the full impact.

A focus on communicating total compensation will ultimately help you protect the significant investment you make in pay and benefits – over 70% of your revenue.