Compensation Management System
Monday, March 29th, 2010
Question on compensation system?
Why do some employers prefer to analyze total compensation rather than strictly salary when they compare packages? What are some employee objections (this includes management employees)?
Salary is just one component of total compensation. Similar companies (whether in the same field, or the same geographic area) compete for the same pool of employees. To be competitive (and attract qualified employees) companies need to make sure their total compensation package is competitive in relation to their competition.
So a company would include salary and benefits in the calculation of total compensation. Benefits include things like: holiday, sick/vacation, health care, bonus package, 401k plan, etc.
Employees sometimes object to this because, for them, the key metric is cash salary. As this affects the kind of house, car, school, vacation, etc., they can afford.
But this is sometimes shortsighted. One company may provide a lower salary than another, but provide a fully company paid medical plan. Another company may pay a higher salary, but charge an employee using the family medical benefit $500 per month for health care. If the monthly salary of the first company is just $300 less per month than the second company, an employee of the first company would still have more cash to spend at the end of each month. In this case it would be $200 per month.
Also, for some employees, other things than salary may take precedence. Older employees may desire a more generous 401k match, for example, or other employees may desire a richer vacation plan.
Using a total compensation measurement really puts everything on a level playing field.
Small Business Tips : Small Business Compensation System