A well-managed compensation package helps you attract top talent to your company and retain your current employees. It also helps boost employee morale, which increases productivity and strengthens your business. For these reasons, it’s important to understand what’s included in total compensation and to communicate it to your employees.
Compensation can vary from one company to another, but here are some of the major components of total compensation.
Employees’ base pay is the most visible part of their compensation. It refers to the fixed amount employees receive in each work period (like an hour or week). Every time your employees get a paycheque, they get a reminder of their base pay.
Sometimes, employees receive extra payments as rewards for high performance. Year-end bonuses or sales commissions could fit into this category. Profit sharing arrangements should also be included.
Employees receive many types of paid leaves. They may not think of time off as part of their compensation, but as you know, it costs your company money. Vacation time, sick leave, personal leave, and volunteer leave are some examples.
Health and Dental Insurance
Health and dental insurance is a key part of your compensation package. It helps employees pay for prescription medications, dental care, vision care, and other services. As a business owner, you know how much this insurance costs, but your employees don’t. Employees who make many benefits claims may realize the plan is part of their compensation, but others may not think about it.
Life insurance provides security and peace of mind to employees. They know their families will be looked after. As you know, peace of mind doesn’t come for free. The cost of the premiums counts towards employees’ total compensation.
Short- and Long-Term Disability Insurance
Short- and long-term disability insurance helps sick or injured employees replace their incomes if they’re unable to work. This type of insurance is something employees may not think about until they need it.
Some companies contribute to their employees’ retirement funds. If you make contributions to a group registered retirement savings plan (GRRSP), defined profit sharing plan (DPSP), or another plan, that’s part of your employees’ compensation.
Wellness programs aim to help employees become healthier. While getting healthier is its own reward, these programs cost companies money and are part of your employees’ total compensation. The costs of paid gym memberships, catered lunches, fitness wearables, and anything else you’re providing as part of these programs are part of compensation.
Do you spend money on employee rewards that aren’t listed above? Any unique rewards you offer are also part of total compensation. For example, components like access to a company car, company mobile phone, or parking vouchers have value. Employees may not realize they have access to these types of rewards, and if they do, they may not know how much they’re worth.
How to Communicate Total Compensation
Your total compensation might be upwards of 25 percent higher when you add all of the valued benefits you provide an employee. Don’t forget that laptops, cell phones, automobiles, and iPads are all part of compensation. To be competitive, make sure you and your employees have visibility to the total value of their roles and contributions to an organization.
Communication is important. Ensure the total value of what is being earned is visible.
The easiest way is to create individualized total rewards statements. With these statements, employees can see all the components of their compensation, as well as the dollar value for each. Employees may be shocked to learn that their base pay is just a small part of the big picture.
Creating total rewards statements for every employee used to be challenging, but thanks to technology, it’s now simple. You can use your human resource information system (HRIS) to create these statements.
By ensuring your employees understand everything that’s included in their compensation, you can strengthen your business. To get started, simply create total rewards statements with your HRIS and show them to your employees.