Total Compensation Statement: A Retention Tool Worth Considering
Posted in: Employee Benefits
As a business leader, part of your job is to make sure your company is positioned to hire and retain the best people. How do you do that? One obvious answer is to offer competitive salaries and benefits. But there’s another piece that can go along with that, one that companies often overlook: communicating with employees and recruits about their total compensation.
The average employee, when she thinks about how her employer values her, thinks first about one number: her salary. She knows she gets benefits, too, but she doesn’t necessarily attach a specific dollar value to those benefits.
Now, let’s say once a year, you give that same employee an easy-to-read total compensation statement. In addition to salary, the statement shows monetary values for your contribution to items like: medical, dental, life, and disability insurance; 401k; pre-tax payroll deductions; training or education costs; paid time off and holiday pay; and even your tax obligations on behalf of the employee.
So now instead of thinking of her value as salary plus a benefits package, this employee will start to think of her earnings and worth as salary plus the monetary value of the benefits package. That little shift in perspective, multiplied across your entire workforce, can make a big difference in overall morale and retention at your company.
As the economy has improved, hiring and retaining quality employees has become more and more critical for businesses. Whereas until recently, employers had the advantage — job seekers outnumbered available jobs during the economic downtown — now the recovering job market gives employees more choices.
Employers recognize the changing market: In a 2015 Deloitte survey, business and HR leaders named engaging and retaining employees as their top concern, which bumped developing leadership (the defending champion) out of the top spot. Such concern is warranted, as many employees admit to being dissatisfied with their current positions. In fact, according to Spherion Staffing Services’ 2015 Emerging Workforce study, nearly a quarter of American workers say that they are likely to look for another job in the next 12 months.
The workers cite unhappiness with their current salary as the number one reason for seeking a different position — even though HR names management climate, culture, and work environment as the most important factors for employee retention. Though not every business believes it, competitive comp packages are a major reason workers stay with a company, and providing total compensation statements shows that you are actively working to communicate with your employees about the factors that matter most to them.
Create and distribute a statement
The question then becomes: How do you produce a total compensation statement?
Your company already has collected all or most of the data it needs to come up with such a statement. The real operational decision, however, comes when you consider what it takes to aggregate, analyze, and report that data in a format that employees will find easy to read. And you’ll have to decide how to best deliver the statements, whether electronically via a secure online portal, mailing a hard copy, or using another method.
TIP: It’s a good idea to provide total compensation statements off cycle from your benefits open enrollment season, so the statements don’t get lost in the shuffle.
As an alternative to doing all this work in-house, many firms elect to work with an experienced consultant to produce highly polished, easily updated total compensation statements. A skilled consultant will coordinate project planning, strategy, and management; manage, verify, analyze, validate, test, and upload data; prepare audit reports for quality assurance purposes; and manage statement distribution.
The payoffs of providing total compensation statements can be substantial, but you need to be on the watch for some common issues that may arise. For instance, accidentally double-counting items inflates the statement artificially and makes employees suspicious of its validity. Don’t count vacation or leave pay on top of the base salary if it is already included, and don’t count reimbursed expenses either — employees had to spend the money in the first place, so the net gain for reimbursements is zero from workers’ perspectives.
In addition, the statement can appear misleading if you include items or benefits that the employee doesn’t receive or isn’t eligible to receive. Some examples include counting public transportation discounts for a worker who drives to the office, or listing 401k contributions before an employee can actually earn them. Likewise, the statement should also exclude 401k payments or anything else the employees must personally contribute in order to receive the benefits.
Providing total compensation statements can also prompt workers to take a closer look at their salaries or expenses, so be prepared to respond to their reactions. If employees are putting in a lot of overtime, they may decide that the total salary and benefit package is not adequate compensation for all the extra work. Some may even try to negotiate a higher salary in exchange for cutting benefits they don’t want. Statements also quantify variations in individual employees’ compensation, which can frustrate workers and lead to questions.
While there may be the potential for problems, the benefits can outweigh the risks. Your company likely already spends a lot on benefits for employees. Providing them with a periodic statement showing exactly how much their benefits are worth can make a real difference in retention. To understand more about total compensation statements, or if you’d like help getting started with one for your company, please feel free to contact me at firstname.lastname@example.org.