Why Don’t You Understand Your Compensation?
Written by Alex Freund
Take Steps - Personal Strategy
| Article Index |
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| Why Don’t You Understand Your Compensation? |
| The Money You Save |
| Additional Types of Compensation |
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Indeed, most people don’t understand their compensation. That’s amazing, since after all, compensation is the main purpose for having a job. Don’t misunderstand me: most people know their salary, but salary is only a part of total compensation. There’s a lot more that you should know about this subject so that when you’re in the compensation negotiation stage of your interview, you’ll be equipped with the ammo necessary to win. There are two major parts to compensation: the money you make (income) and the money you save (assets). The two parts are analogous to a checking account and a savings account, respectively, at the bank.
The Money You Make
The money you make typically falls into a range based on historical data. But how does your potential employer determine what you should be paid?
In large companies, the process is complex and involved, and certain people in the human resources department work full-time—and exclusively—on determinations of pay ranges. They gather information from a wide variety of external and internal sources to ensure that the company stays competitive. The overall, company-wide compensation policy is determined by a compensation committee, which is a team made up of members of the board of directors.
In small companies, of which there are about 7 million with 25 employees or fewer in the United States, compensation packages are derived simplistically and by whatever the market bears.
In both cases, though, whether a large or small company, two components make up the bottom line: (1) market pricing, or the going rate, and (2) job content evaluation, which is a correlation with other, similar, internal jobs. On top of salary there might be other sources of income in the form of bonuses such as cash payouts, profit sharing, commissions, stock purchases, and stock options. Job candidates are advised to research compensation via a variety of Web-based sources before negotiations start. If relocation is involved, it’s always advisable to think of the cliché “It’s not the money you make but the money you keep.” The cost of living varies widely of course in different parts of the country.