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Total Compensation: Definition, Strategy & Elements

Instructor: Rahman Johnson

Rahman is a TV News Anchor with a Master's Degree in Strategic Communications and Leadership.

When a new team member gets a new position, one of the most important questions asked is 'What's in it for me?' It's the WIIFM strategy! Getting a top team member to join a company is not a decision that is made by just looking at the dollars.

Total Compensation

When most people hear compensation, they think about money, but total compensation is much more than that. Total Compensation is the entirety of benefit offerings that a company provides to a team member in exchange for work. This compensation includes, but is not limited to health care benefits, educational incentives (i.e. tuition reimbursement, etc.), vacation time, paid time off, flexible schedules, location options, retirement, work environment, special programs, and yes . . . salary.

Some companies have very simple and easy to understand compensation plans. This is very typical of smaller organizations. However larger organizations have a much more complex system of compensating team members.

Elements

There are two major foundational elements that companies can use in compensation. These elements are the rate of pay, and health care coverage. Primarily, these two costs make up the majority of employment compensation.

The most basic form of employee compensation is the rate of pay. Most companies like the US Federal Government tend to use pay grades or scale systems. These grades are based on the time in a position, education, specialized skills, location, and other factors. The government does a pretty good job of being transparent about how team members are compensated by using a published and well defined scale. Private companies may not be as clear as to how they decide what to pay. Even though these grades may work well for some team members, they may not work for all. Positons based on performance, (i.e. Sales or C-Suite) could have a very different rubric in determining how those members of the team get paid.

The second major foundation of compensation is healthcare. With the passage of the Affordable Care Act, there have been a great deal of changes with health care costs, needs, and requirements. Depending on the size of the family unit, these costs can vary greatly, and are of significant interest to both team members and companies. In fact some employees will spend just as much time and effort negotiating health care as they do with their salary.

Don't forget, there are other elements that go into the package, like parking spaces/privileges, child care, fitness memberships/facilities and the list goes on and on.

Some employers try to make this process simple for employees by producing an annual benefit summary. This summary is a detailed listing of all of the costs that the company has to pay to train, retain, support, and reward members of the team. Using these types of documents companies get an accurate snapshot on the dollars that they are spending on employees, and employees get a closer look at how much companies invest in them.

Effectively Using Total Compensation

When prospective team members are looking to make a decision to join a company, the total compensation is a huge factor in making the decision. Because this factor is so important, the companies must make sure that the offer is competitive, compelling, and comprehensive so that they can have a better chance in securing top tier talent.

Effective compensation plans should be easy to understand, predictable, and logical. Using this helps employees to be as knowledgeable as possible when making a decision.

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