The Value of a Total Compensation Statement

The purpose of a Total Compensation Statement, otherwise known as a Total Rewards Statement, is to make the employee realize the overall value of the compensation they are receiving. In many cases, the employee doesn’t know what makes up their total compensation, and their paycheck or stub is never going to indicate why they get paid what they get paid.

Learn about what makes up a total compensation statement, and how that information can be used to rationalize your own or your employees’ paychecks.

What makes up an employee’s total compensation?

A total compensation statement tells employees everything they need to know about pay, primarily what is included in it.

Total compensation can have a number of components that can dramatically increase the job’s overall value. Besides the base salary, total compensation typically includes:

Short-term incentives – STI includes different types of bonuses (e.g., annual, merit, performance, signing, gain sharing, and profit sharing) and other performance-based awards.
Long-term incentives – LTI such as stock options, restricted stocks, performance shares, cash, or stock-settled performance units.
Benefits – These include healthcare, personal time off, 401k, social security contributions, short-term and long-term disability coverage, pensions, free parking, or health club memberships.

Show Employee Commitment with a Total Compensation Statement

As discussed in detail within Understanding Total Compensation, outlining the total value of the elements within an employee’s pay package is critical to demonstrate the organization’s commitment to the employee.

In addition to standard benefits, the Total Comp Statement may be influenced by different components like percent salary increase, bonus target, target goals achieved, effective date (that pay or benefits begin occurrence), or pay date.

A Total Compensation Statement is generally used upon hire, or at the end of an annual compensation process, to communicate comp details to the employee. Plus, it can serve as a reference document for the employee-manager conversation about bonus awards or merit increases.

Total Compensation Statements also might include messaging from the company, or leadership around the employee’s contributions on other occasions.

What is a Total Rewards Statement?

Another type of total compensation statement is known as a total rewards statement. A Total Rewards Statement is more complex than the Total Compensation Statement, and can include benefits like 401k match, company benefits contribution, or tuition reimbursement. Not all companies can produce a Total Rewards Statement, as it has many inputs, and can be cost prohibitive to deliver.

What could a total compensation statement look like?

As an example, provided is a total compensation statement template from within CompAnalyst, the compensation software management platform from Salary.com.

In this example, the following aspects make up the Total Compensation Statement:

Employee – The incumbent that is covered in the total compensation statement.
Job – The position the incumbent works in.
Pay Market – The geographic region to which the job is being priced.
Years at Company – The number of 12-month periods the incumbent has completed at the company.
PERF Rating – The score that a supervisor would grade the employee based on their individual performance and success.
Base Salary – The employee’s fixed annual income that they earn in the role.
Annual Bonus – The total amount the employee can expect to receive as an incremental cash award after a year of work.
TDC – The acronym for total direct compensation, it’s the combined value of base salary, annual bonus, and annual long-term incentive grants over the year.
Composite MRP – Market reference points, such as the midpoint of a salary range, help employers consider an appropriate pay level (or future merit increase) based not only on an employee’s performance and experience, but also their location in the pay range (relative to the MRP).Market reference ranges, such as percentile quadrants, can also help you administer pay increases through a merit matrix.
Market Index – Also known as the compa-ratio, it’s the percentage obtained by dividing the actual salary paid to an employee by the midpoint of the salary range of that position. It is used to assess the competitiveness of an employee’s pay based on industry average.

A total compensation statement can tell a lot about how your employees are being paid. For instance, the document can help:

Inform whether an employee is being paid above or below the market average.
Determine if your incentives help attract and retain top talent.
Establish what pay practices employers need to change so they can continue to have employees engaged with their work.

When writing out an employees’ total compensation statement, employers should explain reasoning behind pay decisions made for employees, and show how employees can increase their compensation over time.