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How to Explain Total Compensation to Your Employees

Apr 16, 2018 9:00:00 AM / Margaret Reid / Total Compensation / 0 Comments

How-to-Explain-Total-Compensation-to-Your-Employees-compressorYou know all about the importance of total compensation. Total compensation includes everything you spend on your employees, from their base salary to their medical benefits to any other benefits in between, such as subsidies for moving or the reimbursement of travel expenses. 

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Total compensation raises the overall value of employees’ pay. They're not getting just their base salary. They're worth much more to you, and you spend much more on them. 

The idea can be a difficult one to explain to both current employees and potential hires. How can you make sure everyone's on the same page?

The Salary Conundrum

Most people say they wish their employers paid them more or truly valued them (often by paying them more). They'll then talk about how their salaries are too low, how they're worth much more, or how a friend in a similar position makes so much more at another company. 

The big problem with this kind of talk isn't so much that it shows employee dissatisfaction. The larger issue is employees almost invariably refer to their salaries alone. "My friend Joe makes $50k at his job. Why am I only getting paid $45k?" 

The employee never mentions their own benefits or Joe's. They don't talk about any of the little things you offer, such as travel reimbursements or even stock options. Yes, Joe might get paid $5,000 more, but does he have the same total compensation?

Comparing Robust Total Compensation Packages to Salary-Only Compensation

The answer is likely no. Joe's total compensation is likely to be different than your employee's. In fact, your employee might actually come out ahead, depending on what Joe's employer offers. A higher salary may be used to offset a lack of benefits.

If you pay $45,000 to this employee, they likely think that's all they get. However, you also offer a health benefits plan, a pension plan, long- and short-term disability, and three weeks of vacation and paid sick leave.

For comparison, imagine Joe's company offers him $50,000 in salary, but he only gets two weeks of vacation. The company doesn't offer benefits, disability insurance, a pension plan, or paid sick leave.

Which employee is actually better paid? Yours, of course. You offer so much more than your competitor.

Convincing Employees

Now for the tricky part. You can easily see you offer better total compensation versus your competitor. The problem is you need to convince your employees of this fact. Most people have a difficult time understanding the idea of total compensation.

Sometimes, this is because the employee can't put a price tag on the perk or benefit. Yes, you offer reimbursement for travel expenses, but how much does that really "pay" the employee? If the employee never travels, their answer could be zero.

The same is true of a benefits package. You could put a price tag on the benefits you offer. Just add up the amount of coverage your employees have. If you offer $1,000 for dental and $500 for vision, your employees have $1,500 worth of coverage.

An employee who never makes claims, however, might value the benefits package at $0, since they never see any tangible benefit from it. They might even say they'd rather see that $1,500 in their paycheque.

Demonstrating Value

What you need to do, then, is demonstrate the value of what you offer. Employees might think they'd be better off if you just paid them instead of wrapping up "value" in long-term disability insurance and pension plans and benefits they never use.

Ask your employees to volunteer a situation when they needed support. Use their real-life example to demonstrate how what you offer goes beyond just salary to support them in so many more ways. More than dollar signs, total compensation helps your employees live their best lives.

How-to-Power-Your-Company's-Growth-with-Compensation-Management

Topics: Total Compensation

Margaret Reid

Written by Margaret Reid

As the senior vice-president of Apri Insurance Services Inc., Margaret is a benefits consultant and manager of technical support. She has almost 40 years of experience in employee benefits as well as processing health and dental claims, benefits administration, and client service and groups sales. Margaret worked at Crown Life, a major insurance carrier, for 20 years, then worked at CG&B as the manager of their group department. She moved to B.Comm Financial Insurance Solutions in 2007, which merged with several other benefit consulting companies in 2011 to create Apri Insurance Services Inc. Margaret has unintentionally followed in her father’s footsteps. He was a group sales rep with Crown Life when she was a child and helped her get her first job in group insurance, which led to her current career path.

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