What is a Total Compensation Statement: Why is it Important?

An employee's compensation is the deciding factor of their job satisfaction. This is not only about their base salary, but also the full value of their work—the total compensation package.

In a survey conducted on 1000 US-based full-time employees, 79% of them want pay transparency while 68% would shift to companies with better pay clarity. One of the ways to promote this in compensation packages is providing total compensation statements.

You might wonder what a total compensation statement is and why many employers are adopting this nowadays. Read on as we show you its importance, inclusions, example, and how to create one.

What is a total compensation statement?

A total compensation statement is a document containing the entire monetary amount an employee earns. The coverage of the total compensation package includes the salary, benefits, and incentives given by the company.

In giving total pay statements in your company, being simple and automated is the key. Tools like Compensation Planning Software will help you simplify the employees’ benefits through streamlined communication, versatile spreadsheets, and enhanced tracking.

What are the benefits of total compensation statements?

Reality check: the main driving force of motivation at work is an employee's total compensation package. Giving an overview of their total pay reminds them that their hard work and contribution are worthwhile.

In fact, the report shows that 58% of workers prefer to work in a company that publicly issues salary information for accountability. Here are other advantages of having a summary of total compensation:

• Pay transparency. Being honest with employees gives them the impression that you are being deliberate and trustworthy of your pay strategies. This makes employees feel that their labor is in good hands, boosting their productivity and motivation.

• Employee retention. The key to keeping top talents and attracting good candidates is a well-communicated total compensation. Managing talents through giving sensible and automated total pay statements can be achieved by using tools like Compensation Planning Software.

• Insights and improvement. Having a total pay statement will help companies establish more effective benefits for employees based on trends and insights. Assessments must be done to find out if the existing benefit packages are amenable to the employees or not.

What is in a total compensation statement?

Since the compensation statement is a summary of the total monetary earnings of an employee, it must be comprehensive and inclusive of all necessary compensations. Total compensation is divided into two parts: direct and indirect compensation.

Direct compensation

Direct compensation is the salary employees get in exchange for their labor and hours of work. This includes compensation imposed by law and additional benefits from the organization. Here is a list of the inclusions for direct compensation:

• Base salary. This is the fixed and standard payment for the completed work of an employee agreed upon by both the worker and the company.

• Overtime pay. This is the payment when an employee works for additional hours beyond the contracted time. With this, the rate of pay will be higher than the base.

• Bonus and commission. This is performance-based pay that serves as an incentive given to employees who made achievements and more revenue for the company.

To help you streamline the process of planning merits and bonuses, use Compensation Planning Software. It is automated to avoid manual tasks and has an adaptable module designed to be easily integrated in your payroll systems.

Indirect compensation

Indirect compensations are benefits that an employee receives aside from their salary. While direct compensation is mainly for employee salary, indirect compensation is for employee perks that can increase their retention and satisfaction. Examples of this are:

• Insurance benefits. Catering to the welfare of workers, this will protect employees in times of accidents, health concerns, and disabilities.

• Paid time off. This allows employees to get paid even on days when they’re not working, such as sick days, vacation leaves, or holiday rests.

• Taxes. The employee’s contribution to the government comes in the form of taxes that are deducted from their pay, such as Social Security, providing retirement and disability benefits.

• Stock options. This gives employees the opportunity to purchase stocks of the company at a deducted price, allowing them to have financial advantages.

• Reimbursements. Some companies reimburse work-related expenses of their employees, such as training costs, professional engagements, and travel fees.

• Retirement plans. Retirement benefits help secure the future of the employees after they retire from working, such as the 401K plans.

• Assistance. Forms of assistance vary from childcare and housing to wellness and education, depending on the company’s offers.

Total compensation statement example

To give you an idea on what a total compensation statement looks like, here is an example:

Employee Information

Name: Katie Taylor

Employee ID: EE00011

Job: Accountant Intermediate (FA06000002)

City/State: New York/New York

Years at Company: 2

Performance Rating: 4.0

Total Compensation Received

Direct Compensation: $68,950.00 (87%)

Employer Benefits: $10,500.00 (13%)

Total Compensation (Direct Compensation + Employer Benefits): $79,450.00

Benefits Package Value: 13%

Total Benefits Received

Medical Insurance: $2,000.00 (19%)

Life and Disability Insurance: $5,500.00 (52%)

401K: $1,000.00 (10%)

Fringe Benefits: $0.00 (0%)

All Taxes: $2,000.00 (19%)

Total Benefits (Total Insurance + Life and Disability Insurance + 401K + Fringe Benefits + All Taxes): $10,500.00

How to create a total compensation statement

Creating a total compensation statement from scratch can be a tedious job, especially if you’re going to do it manually.

Fortunately, Compensation Planning Software is a tool that offers automated workflow, comprehensive features, and customizable workbooks. This makes the creation of statements more simplified and fast-track.

Here are five easy steps on how you can create a statement using the software:

1. Input data on the planning worksheet.

   Set your employee details and compensation plan in the automated workbook. Some of the items in the sheet include employee ID, location, job level, and current base salary. This allows easy access to employee information configured to the company’s compensation plan requirements and process.

2. Adjust parameters as needed.

   Customize compensation plan by modifying different items like performance rating, merit increase, and eligibility criteria. You can also check the salary history to give an overview of an employee’s compensation records.

3. Review other features.

   Compensation Planning Software has a feature where you can check the budget summary and assess if you’re under or over the budget. You can also add or remove columns within the worksheet as needed. Lock cells to prevent changes and note flagged cells to avoid errors outside the guidelines.

4. Save work.

   Once you’re done making automatic edits on the components, you can now save your work and let it go through an approval path, representing the transparent chain of communication specific to your company’s planning process.

5. Deliver the statements.

   Once your total compensation statement is ready for distribution, it can either be issued by a manager or employees can log in and access their own statements. The whole process is automated through the Compensation Planning Software.

FAQs

Here are some frequently asked questions about total pay statement:

How do I calculate my total compensation?

Total compensation is the sum of your salary, incentives, and benefits. Therefore, you need to add your base salary, bonuses and commissions, and other benefit packages the company offers. Here’s an example:

Base salary = $60,000.00

Bonus = $1,000.00

Health Insurance = $1,000.00

Relocation Assistance = $2,500.00

Total Compensation = Base salary + Bonus + Health Insurance + Relocation Assistance = $64,500.00

What is the difference between total compensation and total rewards?

Total compensation refers to the financial aspects like base salary, bonuses, and insurance. Total rewards refer to the aspects covered by total compensation plus other benefits, such as company culture, career development, and recognition programs.

What are the common challenges of total compensation statements?

Common challenges of providing statements are inaccuracy and proper communication. It should be accurate, otherwise it will be deemed unreliable and can cause distrust and defeat the purpose of pay transparency. It must also be effectively communicated to help employees understand and avoid confusion.