The Value of Using Total Compensation Statements

By Jodi Schafer, SPHR, SHRM-SCP | HRM Services |

Q: We are struggling in this job market to not only attract employees but retain the ones we have. Part of our challenge is that job candidates and current employees are expecting a much higher salary than what we can pay. We provide a rich benefits package, but candidates and current employees are only thinking about salary. What can we do to help them see the whole picture of what we are offering?

It’s not uncommon for employees to think only about the direct compensation they receive in the form of W-2 wages when evaluating the competitiveness of their current pay. However, as you indicate, employers often enhance hourly/salary rates with indirect compensation as well, like paid time off, uniform allowances, health and wellness benefits, etc.  Unfortunately, the value of these benefits is rarely communicated with employees, which is why employees don’t often consider them when making decisions about whether to stay or go. In a labor market this tight, failing to provide current and potential employees with the dollar value of their TOTAL compensation (direct + indirect pay) is a missed opportunity. Therefore, you might consider creating total compensation statements, also known as total rewards statements, for each employee and prospective position.

A total compensation statement outlines the specifics related to pay (direct compensation) and benefits (indirect compensation) and the cost for each. It shows the employee (and prospective employee) what the practice is investing in them. When done well, being transparent about total compensation can increase your employees’ understanding of the total benefits they are receiving, which goes a long way toward building trust with your employees. The employee can also use this information to better assess and compare their total compensation to other employers.

The process for creating total compensation statements is fairly straight forward. Often practices use an Excel spreadsheet and detail the specifics related to wages, including base pay and bonuses, the employer-paid costs for health and welfare benefits such as health, dental, and vision plans, short- and long-term disability, flexible spending accounts, life insurance, and retirement. They also include the quantitative value of employer-paid training/CE, paid time off, as well as federal social security, taxes, Medicare, workers compensation, and unemployment insurance paid on the employee’s behalf. Each employee receives this customized, itemized listing of the total investment you have made in them.  For an example of a total compensation statement click here.

It is essential that these calculations are error free and calculated consistently across employees. Expect employees to compare their numbers and if they find a mistake, they will doubt the accuracy of the entire summary, which can erode trust and confidence in management. For this reason, it is also important to ensure that you have internal pay equity before implementing total compensation statements. Employees in like positions with like circumstances (e.g. experience, education, performance) should be paid in a like manner. If you have concerns that you may not have a pay structure in place that is consistently applied, you should assess and make changes, as necessary, so that your transparency in sharing employee pay information does not backfire with a lot of questions that you cannot answer.

Additionally, you will want to spend some time thinking about the communication method you will use to distribute this information to your team.  Will employees view this process as justifying why their pay is not increasing? This can be a typical response and you can proactively address this by:

1. Clearly communicating the purpose for sharing the total compensation statements (e.g., to increase transparency, so that they have the full picture and understanding of their pay and benefits, etc.).

2. Ensuring a strong and consistently applied performance evaluation process so that any differences in pay due to performance is documented and has been discussed with the employee.

3. Ensuring internal pay equity.

As you weigh the pros and cons, consider steps you can take to increase confidence and transparency in your practice’s total rewards structure. Overall, employees appreciate transparency from their employers and if it is communicated well and the data is clear and easy-to-follow, employees may truly see the full picture of your investment in their success. This process, in and of itself, may also contribute to a more positive work culture, which is also a great retention strategy.