When evaluating jobs from a compensation standpoint, the first thing most people do is compare the offered salary. While this is an important component, it’s far from the whole story. One way to think about employee compensation is similar to the food pyramid. It’s good to have a healthy balance! Of course, there are always exceptions. Let’s build a complete employee compensation pyramid, helping you consider all the components of a benefits package:
First, on the bottom of your pyramid is your base pay. Whether that is hourly, salary, or commission based, your base pay carries the weight of your income and provides stability for your finances. Most people want to have this be the core of their compensation. If your job has a commission or sales component, try to understand how predictable that component of income will be because it plays the largest role in your compensation package.
Moving up the pyramid just a bit is your insurance benefits. This includes health, dental, disability, life, long-term care, etc. Insurance is a big consideration for many employees but will depend on your individual situation. For example, will you need to provide health insurance for yourself or your family? One often overlooked benefit is disability coverage. If you were to find yourself unable to work, is it important to ensure your income?
At the same level as insurance benefits are understanding the job’s leave policies. What are the leave and work from home policies? How much sick/vacation/PTO do you have access to and how quickly does it accrue? Also, are there paid leave policies for different life events like having a baby or medical absences? In this area, it’s also important to consider work-from-home policies. While not a monetary benefit, where you perform your job duties affects your day-to-day experience, making it something to consider when looking at a job’s benefit package.
Moving up on the pyramid, retirement plans. Saving for retirement throughout your career is usually critical to meeting retirement goals. However, not all retirement plans are created equal. There are many types; 401k, 403b and defined benefit pension plans to name a few. Learn about your options and consider:
- Does your employer provide a matching contribution?
- Is there a waiting period to participate?
- How long does it take to become vested in the plan?
- Can I make changes to my selection after my initial new hire period?
Also consider equity compensation. This includes Restricted Stock Units (RSUs), Employee Stock Purchase Plan (ESPP) or other types of stock awards/options. Employees with equity compensation will want to make sure they are tending to this benefit. It’s important to be careful not to overexpose yourself to one company or incur unexpected tax consequences related to these benefits. Timing can make a big difference with these benefits and is something a financial planner can help you navigate.
At the top of the pyramid, we place bonuses. A treat if they happen, but you can’t always count on them to be part of the meal. However, unlike the food pyramid, the more bonuses the better! Other perks you may find at the top are things like lifelong learning funds for continued education or loan repayment programs for student loans.
Like using the food pyramid as a guide for a healthy diet, each person will have priorities for themselves and their family, so the order of how these benefits fall on your pyramid is also flexible. When considering a new job or if you have multiple offers, be sure to check in with your financial planner to fully consider the full array of compensation on the table. We’re here to help you make the most out of understanding your benefits package.
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