Total Compensation Methods: An Introduction

¶ … Total compensation methods: An introduction and overview

While base salary is obviously an important component of a job seeker's decision to select a particular position, attractive benefit packages and other methods of compensation bestowed by various corporations have grown increasingly important in the lives of employees, particularly given the spiraling costs of health insurance coverage. The total compensation philosophy reflects the idea that compensation should be based upon salary but also reflect indirect pay benefits such as health and dental insurance, life insurance, disability pay, tuition benefits and retirement and post-retirement benefits (Total compensation @ UMass Amherst, 2010, Human Resources).

When weighing two job offers, an employee must consider the 'total' benefits of each position. For example, he or she might receive a higher salary at Company X, but not receive particularly good health insurance or retirement benefits. Company Y might offer him or her less money, but more generous benefits. The costs of lower co-pays and dental and vision care might 'make up' for the lower base salary, particularly if the employee or a member of the employee's family has a chronic health condition. Different employees might also be swayed by the type of retirement packages offered. In today's volatile economic times, pensions (which are guaranteed) versus 401(k)s are seen more desirable, although the former are rarely offered, given the drain pensions can pose upon an organization's finances, as employees are living longer and longer after they retire.

The type of industry and typical employee profile might affect the types of total compensation packages that are offered by a corporation. For example, a company wanting to attract highly talented young employees might offer tuition benefits. Or an organization that is rapidly changing and requires a more highly educated workforce might offer tuition reimbursement for relevant educational courses. Employees in fields of work where advanced degrees can provide additional professional prestige and garner higher salaries, like education and engineering, might be particularly receptive to tuition benefits as part of total compensation packages.

Paying workers according to their performance is controversial in some fields, but accepted in other fields, such as sales. The types of bonuses offered to employees in some professions, from sales to investment banking, are another aspect of 'total compensation' that might affect an employee's decision to remain at a company. Some bonuses might be traditional 'lump sum' payments while others might take the form of smaller bonuses, paid upon the completion of phases of work (Heathfield, 2010, p.2). Additionally, the potential to work overtime might be attractive to some employees. Conversely, family-friendly hours, on-premise daycare facilities, and 'flextime' might draw prospective employees to specific companies, if the employee has the obligation of looking after small children.