The Power of Total Compensation Statements

A total compensation statement is a document that shows an employee’s total compensation, including benefits and bonuses, for the year. Though this may sound like a pay stub or a W2, but it’s much different, and we can help you prepare these for employees in your organization before the end of the year!

Often called “total rewards” or “total benefits statements,” they include both direct and indirect benefits, received by an employee from their employer. The intention behind these statements is to give an employee a complete view of the annual value of their pay and benefits. For example, an employee may earn $22/hour, but with all of the wages and benefits they receive, their total compensation in a year may actually be $57,760 and that certainly has more impact!

What to Include in a Total Compensation Statement

Examples of items that may appear in a total compensation statement include:

• Salary or hourly wages
• Overtime pay
• Bonuses
• Medical, dental, and vision insurance reimbursement costs
• Employer’s contribution to an HRA, HSA, or FSA
• 401(k) or other retirement plan
• Paid leave for sick, personal, vacation, bereavement, and jury duty
• Tuition assistance
• Employer-provided meals
• Discount programs
• The value of wellness programs offered

Although indirect compensation is often associated with voluntary benefits and perks, it also includes mandated benefits, such as the employer’s portion of Social Security and Medicare taxes plus Workers’ Compensation insurance payments.

Pros & Cons of Total Compensation Statements

While private employers are not required to provide these statements, many employers think it’s a good idea to create them for their employees.  Here are some pros and cons to consider:

1. PRO: Increase employee appreciation, commitment, and loyalty. Total compensation statements highlight the employer’s true investment in the employee—often, employees acknowledge only direct compensation and not the unseen costs absorbed by the employer. A total compensation statement serves as an “eye-opener,” revealing indirect payments the employee might have overlooked or didn’t know about.
2. PRO: Helps with market rate comparisons. According to a Harvard Business Review article, most people do not know whether they are paid fairly. Some individuals, for example, who receive payment above market rate, actually believe they are paid at or below market rate. A total compensation statement enables employees to take both direct and indirect compensation into consideration (instead of just their hourly rate or base salary).
3. PRO: Transparency is a good thing! We all love more information because it is empowering. Comp statements provide employees with greater access to their own compensation information – the statement may answer questions employees have about their pay and benefits, thereby reducing reliance on your HR and payroll teams.
4. CON: Pay inequity concerns. Employees may want to know how their statement stacks up against their colleagues’—a 2022 Payscale report says that, “One common concern among employers is that employees may compare total compensation statements with their peers and not be happy with what they discover.” This is a legitimate concern for employers – one compounded by the fact that employers cannot prohibit employees from discussing their compensation with each other. On the upside, such discussions are an opportunity for employers to eliminate any pay inequities that exist, and to encourage open dialogue about compensation.
5. CON: Confusion. If employees don’t understand the purpose of a compensation statement (i.e., to enhance employees’ knowledge of their compensation, which can help them to make better financial choices), they may not trust the information. Employees may believe the statement is a way to justify smaller pay raises or they may interpret it as the employer discouraging future salary negotiations. Employers can mitigate this risk by ensuring employees are paid fairly and by clearly communicating the purpose of the statements.
6. CON: A lack of accuracy can reduce trust. Employers may worry about making errors on the statements. One mathematical error could cause the employee to render the entire document as false. Employers need to make every effort to ensure the statements are correct before distributing them to employees. CEA members have access to a Total Compensation Statement builder through CEA University that can help you gather the information and present it in a visually appealing way.

Fostering Employee Engagement

If the pros outweigh the cons for your business, we recommend offering your employees total compensation statements. As one expert stated in a SHRM article, if you’re not providing total compensation statements, “you’re missing a huge opportunity to foster employee engagement.”

In addition to providing total compensation statements to current employees, some companies even provide them to job candidates. If sent along with offer letters, these statements provide candidates with the total value of rewards within the company. Not sure if your company’s compensation is comparable in the market? Consider a compensation survey. CEA provides comprehensive compensation services, including market pricing of individual jobs.