What Is Total Compensation?

Total compensation refers to all the monetary payments that employees receive from their employer. For tenured employees, this includes base salary plus all the monetary incentives and for newly hired employees, it may also include a sign-on bonus. 

Total compensation= Base salary + Monetary incentive compensation

What Is Included in Total Compensation?

The items below are some of the common benefits that are included in the package:

  • Annual salary based on an hourly or fixed rate 
  • Bonuses 
  • Commissions 
  • Child care assistance 
  • Gym memberships 
  • Dental and medical benefits coverage 
  • Health savings account 
  • Paid Leave 
  • Short or long-term disability insurance 
  • Employee assistance program 
  • Educational assistance programs 
  • Relocation expenses 
  • Retirement benefits 
  • Life insurance 
  • Career advancement opportunities 
  • Learning and development opportunities 

Advantage of Total Compensation

Capturing and retaining top talent is a goal that companies want to achieve as frequently as possible and is also one of the advantages. 

Employees look for benefits other than a handsome salary. It is recommended you introduce these benefits to potential employees in the early recruitment stages so that you can capture potential candidates’ attention and enthusiasm. 

How to Calculate Total Compensation?

Determining total compensation is a fairly easy task that deploys several different strategies. Many companies even use special calculators. 

The trick is to assess the monetary value of each benefit given to employees. For some benefits like paid time off or insurance benefits, it is easy to assign a monetary value to them. However, for some benefits such as flexibility to work from home are difficult, it is difficult to put a value on them.

Steps to Determine Total Compensation

To make matters easy, follow the steps below to get some guidance:  

Figure Out the Base Salary

This is the first step to take into account. Employees trying to figure this out can have a look at their pay stubs. 

Determine Paid Time-off Benefits

Employers either offer paid time off benefits in the form of sick time, vacation, or holiday pay or as a lump sum total of paid time off. In order to calculate total compensation, you have to calculate the lump sum value of paid time off benefits. 

Employees trying to determine this value can simply multiply the number of days off by the amount they earn per day. 

Calculate Insurance Costs

Most full-time employees are eligible for long-term and short-term insurance hence assessing their value is another step to determining total compensation. 

Figure Out Any Other Bonuses or Commissions Applicable

Some employees, especially those in sales, receive commissions. Tenured employees and even new hires also receive bonuses. Including these in the calculation is important to get an accurate figure. 

Assess Any Other Benefits Given

Some employers also give retirement benefits to employees and the figure that is contributed towards retirement savings accounts should also be included. Other benefits may include gym memberships, child care assistance, parking, or commuting. 


Related Terms
Non-Qualified Plans