Breaking Down a Compensation Package

Hiring Process

Breaking Down a Compensation Package

Getting an offer is always exciting, especially if you had to jump through hoops to get it.  When someone has offered us something we’ve worked so hard to get, our instinct is to snatch it up before the offer is rescinded. Although you don’t want to sit on an offer too long, it is important to take a close look at the total compensation package offer before making a decision.  This is even more important when you’ve got multiple offers on the table, as you want to make a true apples to apples comparison.

Now is the time to pull up a blank spreadsheet and start digging a little deeper to breaking down a compensation package.  You may find that the offer you think you are getting is entirely different.  Let’s break it down with some questions you should be asking, if the offer does not specify.

Salary

There is a difference between total compensation and salary.  Often times, a potential employer will offer a “total compensation package valued at, say, $85,000”.  That does not necessarily mean that you will be earning an $85,000 paycheck. Breaking down a compensation package is critical for comparison to an existing package. Understanding what is critical to your lifestyle and goals will help you clearly know what you are getting into. This means that as an employee, your base salary, bonuses, benefits, commissions, and misc. perks are cumulatively valued at $85,000. So how do you determine what your paycheck will be? Here are some questions to help clarify how much you can expect to be earning on your paychecks.

  1. What is the base salary?
  2. What is the AVERAGE commission earnings of this position? (If your income will be largely based in commission, it is important to know the answer to this question. Often, a recruiter will give you an “earn up to” amount, but that is not a realistic expectation of what the average seller    If the recruiter cannot give you a range or dodges the question, it’s definitely a red flag).
  3. On what criteria is the annual bonus based on? (Sometimes a company will boast a huge bonus, but the terms to earn the bonus are so ludicrous, it’s all but impossible to meet the requirements).
  4. In the last five years, how often has the company performed well enough to earn an annual bonus? (Even if you hit all the criteria to qualify for a bonus, the disbursement of a bonus is still contingent on company sales and financial management. If they feel they cannot afford to distribute bonuses, then you may be left high and dry.)

Time Off

Time off is much more straight forward, but you still want to know the terms under which you are allowed to use this time.  For instance, in many cases sick days require medical documentation to qualify, so if the only paid time off you get are “sick days”, then a vacation may be out of the question. You also want to ensure that the time off mentioned in the package is PAID time off, not just ALLOWED time off.

Paid time off is usually divided into sick days, paid time off (vacation or personal health), and holiday. Here are some questions to ask for more clarity.

  1. How are sick days earned and do unused days roll over into the next year? (Typically, all of your sick days are not available from your date of hire. You earn them gradually as you work, so by the end of the year, you’ve amassed the full amount.)
  2. How is PTO earned and to unused days roll over into the next year?
  3. What are the terms under which holiday time off is approved? (Depending on the industry and your role, you may not be able to take your Christmas holiday on the 25th of December. Some companies will give you a “Christmas holiday” to be taken sometime in the month of December, but not necessarily on December 25th. )

Financial Benefits

There are far too many financial benefits to review in this short blog, but the most common financial incentives include 401k, pension, and stock options.  For any of these, you want to be aware of two main things.

  1. Qualifying terms. (For many of these offerings, you must meet some sort of qualifying criteria to be eligible. For most, it’s longevity with the company, but some have different or additional terms as well.
  2. Employee contribution. (This is especially important for 401k.  There are some employers who will offer a match up to a certain percentage, which could add up to a substantial amount of money).

Health Benefits

Health benefits are another category that have a wide array of options.  Be sure to carefully examine the health benefits and look at the plans themselves to see what deductibles are offered, if there is an FSA or HSA option, if your doctor is considered in network, if wellness visits are covered at 100%.

The big question here is:

  1. How much of the health benefit cost does the employer contribute? (Some companies will not contribute to benefits at all.  They simply sign up for a group plan and make it available for their employees to purchase for themselves.  Based on their size, some companies will be required to contribute, but the dollar amount will vary.)

Perks and Extras

When breaking down a compensation package a key area to be careful with is perks! Perks and extras can mean anything from a company car or cell phone to free onsite daycare or lunch.  Some companies even offer free parking permits and affiliate deals where you can get a discount with leading brands through your employee status.  As companies are battling to create more enticing offers, perks and extras have gotten a lot more interesting and valuable, so don’t discount them off hand.  Imaging a scenario where you had no daycare fees. You didn’t have to wake up over an hour earlier every day to drop off your child at daycare and arrive home an hour later after picking her up from daycare.  How valuable would that be for you? If you had free lunch everyday, what does that add up to over the course of a year?

Breaking down a compensation package should be down carefully, it is often your last step before accepting a new job. Do it carefully and consider all elements of the offer compared to your existing package and lifestyle.

More Information from our blog on your career and job search Here!

Other articles of interest on this topic:

Forbes

Lynda.com

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