It’s quite common that employees only take salary into consideration when thinking about compensation. Your benefits package might be substantial yet employees may not fully understand the total value of the compensation they receive. These might include “hidden benefits”, which are usually non-monetary, like healthcare, paid vacation days, and many others.
According to this report, the value of employer-paid benefits in private industries in 2017 was 30.5 percent of the average worker’s total salary. This means an employee perceives his compensation to be only two-thirds its actual value. To show the true value of their compensation package, businesses provide total compensation statements to all employees with the benefits factored in.
What is a total compensation statement?
Most of an employee’s compensation extends beyond the base salary. The total compensation statement (also known as total rewards statement) is a document that communicates the full value of an employee’s compensation package–both direct and indirect benefits.
It gives employees a broader, high-level picture of the compensation they receive and is usually sent to employees once a year.
Why are total compensation statements important?
By the late 2000s, organizations realized they needed to offer a lot more than the base salary to keep employees incentivized to do great work and offer value. But, offering more perks isn’t enough. You need to make sure that employees are aware of what the business provides. One of the key ways top-performing organizations improve employee engagement and retention is by being transparent and sharing the entirety of their compensation.
Helps employees understand their contributions
According to employee engagement expert Leigh Branham, “There is no more emotionally charged issue for employees than what they are paid for their contributions. What we make doesn’t just pay the bills—it measures our worth in the most material way.” The total compensation statement empowers employees by giving them a clear picture of their compensation and helping them understand the extent to which the organization has invested in them.
Increases retention and loyalty
Knowing the full value of their compensation can boost employee morale and loyalty. Total compensation statements can be powerful retention tools. In fact, CEB research shows that improving total rewards communication can lead to a 50% decrease in turnover risk.
Improves employee performance
Providing these statements are also beneficial for encouraging high performance because they reiterate the ways in which top-performing employees are recognized for their contributions. When employees feel that their efforts are appreciated, they may be more inclined to contribute their best efforts to the company continuously.
What should you include in the total compensation statement?
Total compensation statements provide a complete break down of all aspects of the job’s benefits. It includes the monetary equivalent of all forms of compensation from the employer. The more detailed your statement is the more beneficial it is.
The TCS consists of two major sections–direct and indirect compensation. Direct compensation includes the base salary and other extra financial compensation like incentives and bonuses. Indirect compensation includes the dollar value of the employer’s contribution to taxes and other benefits. This summary is often referred to as the hidden paycheck.
The following are the components of a typical total rewards statement:
- Base Salary/Wages
- Bonuses and commissions
- Paid time off
- Health/Dental insurance
- Retirement funds
- Tax contributions
- Stock options
- Perks like child daycare, gym membership, commute passes, etc.
Tips for creating effective total rewards statements
Here are some useful tips to keep in mind when creating total compensation statements:
- Make it visually appealing with charts and graphs
- Provide comparison with market data
- Ensure all the data is accurate
- Don’t double count line items–it’s quite easy to add paid time off on top of base salary
- Consider adding net benefit amounts i.e. take into account the expenses incurred by the employees for any particular benefit
- Only add the benefits employees are eligible for
Challenges in creating total compensation statements
PayScale’s 2018 Compensation Best Practices Report says 40 percent of top-performing companies are likely to use total compensation statements, compared to 36% of typical companies. If total compensations were so effective then why are a lot of companies not doing them?
One of the main reasons companies refrain from creating total reward statements is because they feel employees might not be satisfied with the benefits they receive. The statement makes it easy for the workforce to compare it with peers as well as market standards.
But, these statements are actually doorways to open communication and career path conversations. If employees feel their earning potential is limited at your company, and not at par with the market standards, it’s critical you explain why that’s the case.
Accuracy of data
Another reason companies avoid these statements is in fear of giving inaccurate data. Accuracy of data is pivotal when it comes to creating any payroll-related statements. Also, the monetary value of the benefits changes with time and your statements need to reflect those.
If employees feel the data provided is not accurate, it may erode their trust in your organization. There might be benefits they are either not entitled to use or indifferent. In such cases, the statement might seem like a ploy to artificially inflate their compensation.
This is one of the most common reasons for organizations not handing out these statements. Creating total compensation statements for all employees can be a lot of work and can take weeks to process.
How can Compport help?
Total compensation statements are crucial–but creating them manually isn’t the best use of your time or your skills.
Our easy-to-use solution will help you communicate the full value of the compensation you provide to your employees, helping you drive loyalty and retention. The best part is that you don’t have to spend days and weeks on it. With Compport, you can create total rewards statements for all your employees in just 4 basic steps;.
1-Upload your data
2- Choose a total rewards statement template from our template library or simply create your own
3- Generate the statements, and
4- Distribute it to all employees with one click, digitally.
A company can invest a lot of money on its employees but if they don’t recognize the value of that investment, the organization is, in fact, wasting money. Helping members of your workforce understand the value of the benefits you offer may make them reconsider taking another job, especially if your benefits package is robust. Ensure the statement is accurate and that employees know where to find it, and it will be that much harder for your top talent to jump ship.