Monday, December 2, 2013

The Difference Between Base Salary & Total Compensation

by Shannon Webster, Demand Media
We have all felt underpaid at some point. You look at your paycheck, seeing how much you made in salary during a period. You see the price of items going up around you, feeling that you've lost your purchasing power. Yet, you do receive other compensation from your job. Total compensation is your base salary plus all your benefits.

Base Salary

Base salary is what you see on your paycheck. It is the amount per hour or per year that you are paid for performing your job. Base salary does not include any bonuses, benefits or perks associated with the job. It increases with raises or adjustments, but remains the yearly or hourly wage paid. Base salary is typically the number you say when people ask you how much you make -- what you are paid.

Total Compensation

Total compensation is everything the company provides an employee in exchange for working. It includes base salary, bonuses, benefits, perks and on-site amenities. Total compensation indicates that an employee is making two or three times his base salary. A company may inform you that you are receiving additional compensation, yet rarely discloses the full amount compensated during the entire year. This lack of disclosure often leads employees to feel underpaid for their time and services.

Typical Benefits Included in Total Compensation

When looking at total compensation, companies offer common types of benefits. Typical compensation packages include health insurance, performance bonuses, vision and dental insurance and retirement plans. Each of these has a cost to the company and a value to the employee. The values of these plans sometimes are not reported to the employee. Similar rates may not be available to you, if you're paying for your own health, vision or dental plans.

Unusual Benefits in Total Compensation

Companies have many unique ways to compensate their employees. These may be low-cost, yet can increase the total value of the work output. On-site child care, gym memberships, casual dress codes, flexible schedules and prizes are all ways that companies compensate employees. You may not see the value of these benefits listed on your paycheck. The total compensation of these benefits, however, may include savings in time, worry and stress.

What Is Total Gross Compensation?

by Anne Hirsh, Demand Media
Total gross compensation is the amount an employee receives before any deductions or adjustments. Unlike gross salary, which is the earned hourly or annual wages before deductions, total gross compensation includes tips, bonuses and other benefits employers give employees during the period being reported. This information gives government agencies an accurate picture of the employee's taxable income.

Payment and Benefits

In addition to wages, some employees receive benefits such as housing, stock options, 401k or other retirement contributions paid by an employer, performance or holiday bonuses, employer-paid health care or payments for unused vacation time. All these types of income are part of an employee's total compensation package and may need to be reported to state or federal agencies as part of each employee's income.

State Variations

Contact your state's department of revenue or treasury department if you aren't sure what to include in your total gross compensation calculations. Some states exclude certain items from total gross compensation, such as retirement or medical account contributions. For example, Texas includes employer contributions to the state's retirement plan under total gross compensation. Massachusetts does not include employer contributions to employee medical savings accounts. A local certified tax adviser can help you determine which items to include if you have trouble contacting your state's department of revenue.

What Is the Difference Between Annual Compensation & Pay?

by Lisa Bigelow, Demand Media
What you earn for working over the course of a year is made up of a variety of components. Your annual wages or pay -- what you bring home before taxes in your paycheck -- and what you earn in total annual compensation are two very different things, particularly if your company provides significant benefits.

Annual Salary

People generally think first about their annual wages or salary when asked about earnings. For example, if you earn $45,000 per year, that's what you'll think of as your annual wages or salary. However, your wages or salary doesn't encompass all of your compensation, especially if you work full time and for a large, established company. Chances are that your company provides benefits such as health or life insurance, or a retirement investment plan.

Annual Compensation

Benefits are included in your total annual compensation. If your company contributes to a health insurance plan or makes contributions to a retirement plan on your behalf, those dollar values are considered part of your annual compensation. Many companies provide tuition reimbursement or subsidized, on-site daycare; your costs to participate in these programs are also included in your annual compensation. In short, annual compensation includes your salary plus the cost to the company of your benefits. Your annual compensation rises as you increase your participation in these benefit programs.

Additional Financial Compensation

Some companies provide additional financial compensation in the form of stock and option grants. According to "Forbes," many of the highest paid top executives in America earn a significant portion of their annual compensation this way. The rationale is that top executives are better motivated to increase profits when compensation is tied to company performance. Often, these stock and option grants are restricted and can't be cashed in for several years -- called "deferred comp." Some companies have instituted clawback provisions that force executives to return deferred compensation if the company falters because of soured business decisions.

Motivating Employees

Many companies have become creative in their efforts to keep employees motivated in tough economic times. A 2009-2010 survey done by WorldatWork, Loyola University Chicago and the Hay Group indicated that employees prefer intangible incentives that may not affect annual pay but improve the work-life balance; quality leadership was also an essential. Simply put, companies perform better if they have strong leaders who include employees in the design of reward programs that increase annual compensation -- and happiness. Comp days, a better working environment and flex time benefits, while not necessarily affecting annual compensation, can provide meaningful feedback for appreciated employees.

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