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Factoring in the Value of Benefits in Your Compensation

Written by Guest Contributor - 6 Comments

Factoring in the Value of Benefits in Your Compensation

This is a guest post from Suba Iyer.

When I graduated and started looking for my first job a few years ago, I ended up with 2 jobs – one in a very prestigious University and another in private sector. The decision was quite easy, the University offered me $52,000 after negotiation and the private company beat that by $15,000 and offered $67,000 without any negotiation. I didn’t even bother looking at the bulky benefits package the University sent me. As a student living on $15,000 a year until that point, all I could see were dollar signs.

It wasn’t until I saw my husband’s paycheck one day and compared to mine, I realized how much I was paying for getting the benefits he has been receiving for free. I paid for my vision, dental & health insurance; there was no 401k, let alone a match and no vacation/sick days. He was getting paid to bike to work, his company had a gym, bonus, profit sharing and 3 weeks of vacation.

I went back to the University’s benefits package to see what they offered. After doing some back of the envelope calculation, I figured if I had taken the University position which offered excellent benefits; the value of my compensation would have been closer to $70,000 instead of the $52,000 in salary alone.

Now the decision I made then have shaped my career very well, so I don’t regret that choice but thinking back I made a right choice for a very wrong reason – just looking at the salary. I have seen a lot of my friends make the same mistake while choosing which job to accept.

The best way to evaluate the compensation of two jobs is to list your priorities and compare the whole compensation package side by side to see which one is a better fit for your situation.

Quantitative (Monetary) value of employee benefits

Assigning a dollar value for the quantitative benefits is pretty simple. It is important to collect all the pertinent information before making a decision.

  • 401k match: This is the easiest to figure out and straight forward metric to compare for both jobs. What is the percentage match? What is the maximum match
    amount?
  • Stock options
  • Performance Bonus: What percentage of your salary will be your bonus and what are the criteria to get that bonus every year?
  • Vacation: The number of vacation hours multiplied by the hourly wage.
  • Short-term and long-term disability coverage: Same as health insurance shop around for your needs, get quote
  • Education assistance: Will the company reimburse any tuition, books or other cost for education relevant to your career? What is the limit of the reimbursement?
  • Flexible Spending Accounts/Health Savings Accounts: Will they contribute any money to the account?

Qualitative value of employee benefits

Qualitative benefits are rather difficult to put a value on. It can easily vary in value from person to person. If I am already spending $100 in gym membership every month, having an on-campus free gym might offer me a $100 value but for someone who has never stepped into a gym, it is worthless.

  • Health Insurance: It is easy to figure out the dollar value for the insurance offered by the company. I put this in qualitative section only because the needs of individual can change drastically. For someone with pre-existing condition like me, the company provided insurance was a tremendous savings. I didn’t realize that even if I paid $1000+ every month, I cannot find a good equivalent until I quit my job A good way to calculate the dollar value for this is to actually shop around for health insurance based on your current & future needs and get quotes.

Other qualitative benefits might include:

  • Wellness Programs: Consultation with a nutritionist, nurse on-campus, gym membership & discounts on fitness equipment.
  • Child care: Discounted or free child care on campus or close by.
  • Prepaid legal services: The Company pays for a certain hours of legal services every month per employee.
  • Financial wellness programs: Consultation with a financial planner, yearly seminars on investments and tax changes & access to discounted tax preparation services.
  • Flexible work arrangement/Telecommute possibilities: The cost of commute can be quite high – gas expenses, car wear & tear and the countless number of hours spent on traffic.
  • Adoption assistance: Time off and financial assistance for adoption.
  • Laundry/dry cleaning services
  • Discounts on cell phones/pagers
  • Free tickets to events

Seeing the big picture

When it comes to the discussion of compensation, collect all the information above for the jobs you are considering and compare them side by side. Let’s say, you have an option to choose from 2 jobs. The duties, company culture and commute is pretty much the same for those jobs. How will you choose which is a better fit?

Pay/Benefits Priorities/Comments Job 1 Job 2 Industry average(to help negotiate)
Base Pay $70,000 $75,000 $80,000
 

Quantitative Benefits

401k Match Very important as I will take advantage of the entire match. $3500 (100% match up to 5%) $1875 (50% match up to 5%) 100% match up to 5%
Stock Options Not planning to buy company stock, so not relevant 10% discount of company stock, up to 10% of the pay No stock options
Vacation Want to travel more so 3-4 weeks would be ideal $4038(3 weeks) $2884(2 weeks) 2 weeks
Education Assistance Planning to do an MBA, so I will be spending some money on college anyway. The tuition will cost $18000 per year. $12000/year $5000/year $3000/year
Bonus Up to 5% Up to 5% 3% average bonus
 

Qualitative Benefits

Health Insurance Pre-existing conditions need good insurance. Private insurance costs more than $1000 a month Great insurance with low copay. Equivalent to $1300 private insurance Average coverage with emphasis on High deductible savings plan. Equivalent to $300 private insurance.
Gym membership Currently pay $50/month Free gym ($600/year) Discounted membership (50% discount – $300/year)
Telecommute Would love to telecommute Possible Not possible
Child care No kids, not planning to have any, so this is irrelevant Discounted child care near by On campus child care
Cell Phone Currently pay $60 for cell phone. Cell phone is paid for ($720/year) 10% discount for all employees ($72)
 
Total Compensation $106458 + up to $3500 bonus $88731 + up to $3750 bonus

At the first glance, the extra $5000 in salary might look big, but if you actually sit down and put a dollar value for benefits that matter to you, it might tell you an entire different story. So for any new job or negotiation of a raise at the current job, collect all the relevant information, assign a dollar value and priority based on your needs and then pick the best possible option.

What kind of monetary value do you give to your employee benefits? Based on that valuation, what are you top 5 benefits? Or do you care only about wages?

Published on March 14th, 2013
Modified on March 18th, 2013 - 6 Comments
Filed under: Insurance, Working

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6 Responses to “Factoring in the Value of Benefits in Your Compensation”

  1. 1
    Adam - HireMeHigherEd Says:

    Incredibly useful information. I work for a University, with excellent state benefits, and it is amazing how many people do not realize the value in these benefits. Many people use the old “but I cannot eat benefits!” excuse, but in reality, these benefits provide much more value when you look a little bit closer.

  2. 2
    Caesar F Says:

    I usually focus on the wage because I don’t have many expenses. How did you get these numbers?

  3. 3
    Dan Says:

    Great article. I’ll have to sit down and think and calculate the value of my benefits as you’ve done!

    There’s only one thing I don’t understand: why would you not buy company stock at a 10% discount to the maximum extent offered? At last with my company’s stock purchase plan, you can turn it around and sell it immediately, so there’s almost no risk and it’s basically “free” extra taxable income. Even better, my company offers a lookback provision so the effective discount is sometimes greater than 10%.

  4. 4
    Alan@escapingmydebt Says:

    Great article. When I was younger I never took that into account either. I was more interested in the dollar signs. The company I currently work for began to create an employee total compensation packet several years ago. This shows the values of everything each employee receives and adds to current salary. It is a very useful tool and changed my mindset to how I will be looking at salaries again.

  5. 5
    Suba @ Wealth Informatics Says:

    @Caeser, You can get most of these numbers (vacation days, stock options and policy on telecommute) when you talk to the HR. My interviews have always been a day-long process with the HR taking up 30 mins. to 1 hr. later part of the day. Insurance is a little tricky to figure out, I usually compare the benefits side by side and check what it would cost me if I were to get those by myself (you can do those quotes in the major insurance websites).

    @Dan I agree stock options can be a great thing, easy money. This particular example came from my own calculations when I looking for a job. I had already invested heavily in that industry, so I didn’t want own more. I could have sold it immediately just didn’t understand the concept of stock options at that time.

  6. 6
    noxster Says:

    This is awesome content. I think I actually understand the concepts you are trying to convey. I agree on several of the points you’ve listed. You make sense to me

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