Compensation is a bit of a mystery to most people outside of HR. We go to work to make money and receive benefits, but aren’t always sure how our salaries and benefits packages are decided. In order to understand if we are being paid fairly, negotiate an offer, or counsel a friend on a career change, we need to have some understanding of compensation. Interestingly, in most cases, the more people know about how they are being compensated, the better they feel about their pay and benefits. I’m going to let you in on some secrets to help demystify compensation.
The first thing to get straight is the definition of what we call “total rewards” in the biz. Total rewards are about more than just the number on your paycheck. Total rewards include all of the ways in which your organization compensates you and supports you and your career. Total rewards include:
Benefits: Examples of benefits include health insurance, vacation, retirement plans and life insurance.
Work/Life: A company with a strong work/life philosophy supports efforts to help employees achieve success within and outside the workplace. Onsite wellness centers, concierge programs or employee support programs fall under this category.
Performance & Recognition: This includes how you are recognized and rewarded for your efforts and achievements at work.
Development & Career Opportunities: Growth opportunities, trainings, and other learning experience to help you pursue your career goals fall under this category.
Compensation: This is the money you receive on your paycheck. You can have fixed pay (your base salary) and variable pay (commission, bonuses, stock, etc.).
In a typical organization, most of the categories of total rewards are fairly standard throughout the organization with the exception of compensation. When determining compensation for employees, organizations typically consider the following:
Internal Equity: What are other people in a similar job or with similar experience within the company making?
Market Pay: What are other companies paying for similar jobs? Companies obtain this data by purchasing salary surveys.
Qualifications: Why and how are you qualified for this job? More relevant experience or more relevant education will often result in higher pay.
The Total Rewards Philosophy of the Company– This varies by company and can change as the company changes. For example, start-ups typically have a philosophy of paying lower on base salary but offering stock that will be worth more if the company does well.
When thinking about your compensation, you need to look at the big picture. Are there some things that are more important than others? Do you value flexibility in the workplace? Do you need extra vacation time to visit your family overseas? Do you want to find a company with really good health insurance? These factors play off of one another. For example, you may find a company with really great pay and benefits, but that is lacking in work/life balance and performance & recognition. When you are looking to make a career move, you can find out more about this by asking about the values of the company. Here are some questions you can ask to learn more about a company’s total rewards:
How would you describe the company culture?
What opportunities are there for growth and advancement?
Can you tell me about the opportunities for additional training and ongoing learning in this position?
What is the company’s perspective on work-life balance and flexibility in the workplace?
Can you tell me about the standard benefits package?
Do you offer any extra benefits beyond the basic health insurance, dental insurance, etc.?
There it is—compensation in a nutshell. There is a lot to know about compensation, but hopefully these basics are helpful. Companies put a lot of thought into total rewards and by looking into what they offer so you can learn a lot about the organization’s values, which can help you understand if the organization is a good fit for you. When thinking about compensation, my biggest piece of advice is not to lose sight of the big picture. Compensation is more than just the number on your paycheck.