{"id":4819,"date":"2024-06-19T08:11:50","date_gmt":"2024-06-19T08:11:50","guid":{"rendered":"https:\/\/www.brightmine.com\/us\/?post_type=resources&p=4819"},"modified":"2025-07-29T17:05:39","modified_gmt":"2025-07-29T17:05:39","slug":"total-compensation-a-complete-guide","status":"publish","type":"resources","link":"https:\/\/www.brightmine.com\/us\/resources\/total-rewards\/total-compensation-a-complete-guide\/","title":{"rendered":"Total compensation: a complete guide"},"content":{"rendered":"\n
\n
\n
\n
\n

by Natasha K. A. Wiebusch<\/strong>, JD<\/strong>, Brightmine Marketing Content Manager<\/p>\n<\/div>\n\n\n\n

Total compensation costs in the United States increased by a whopping 7% in 2023. For comparison, costs increased by 4% in 2021 and 5.3% in 2022, according to the US Bureau of Labor Statistics (BLS).<\/p>\n\n\n\n

Many factors have contributed to this increase, including inflation and increased benefits costs. But it’s also a reminder of how important compensation still is to employees. In fact, according to ADP’s People at Work 2024 report, pay is still the number one priority for employees.<\/p>\n\n\n\n

HR leaders must continue to prioritize competitive compensation to attract and retain top talent<\/a>. And what’s competitive today goes well beyond salary and bonuses.<\/p>\n\n\n\n

Learn everything you need to know about total compensation in this complete guide.<\/p>\n\n\n\n

What is total compensation?<\/h2>\n\n\n\n

Total compensation is everything an employer offers employees in exchange for their services. It includes pay, employee benefits and other incentives employers offer to employees. Pay usually makes up about 70% of total compensation, while employee benefits make up about 30%.<\/p>\n\n\n\n

You’ll often hear total compensation referred to as a total compensation package or a total rewards package. These terms reflect the combination of cash compensation and benefits. Total rewards also includes non-monetary incentives<\/a>.<\/p>\n\n\n\n

Types of compensation<\/h3>\n\n\n\n

What employers include in total compensation depends on each employer and what benefits the employee selects. Generally, however, there are two broad forms of compensation: direct compensation and indirect compensation.<\/p>\n\n\n\n

Direct compensation<\/em> is compensation in the form of money. The following are common examples of direct compensation:<\/p>\n\n\n\n

\n

Wages or salary<\/h4>\n\n\n\n

Also called base pay, base salary or fixed pay, this is a fixed amount of pay that employees earn in exchange for their work. Employers can pay employees based on an annual salary amount or hourly rate.<\/p>\n\n\n\n

Incentive pay<\/h4>\n\n\n\n

Incentive pay includes bonuses, profit sharing and commissions. Companies usually base this type of pay on individual or company performance, or obtaining a goal.<\/p>\n\n\n\n

Supplemental pay<\/h4>\n\n\n\n

This is pay that is added to an employee’s regular pay. Companies usually offer this for overtime work, overnight or holidays shifts, or other unique circumstances.<\/p>\n\n\n\n

Cost of living adjustments (COLAs)<\/h4>\n\n\n\n

Pay increases to account for inflation. COLAs help ensure base pay keeps up with increased cost of living.<\/p>\n<\/div>\n\n\n\n

Indirect Compensation <\/em>has monetary value, but it is not paid directly to the employee in cash. This includes:<\/p>\n\n\n\n

\n

Paid leave<\/h4>\n\n\n\n

Vacation time, paid holidays, sick time, personal leave and other paid time provided to an employee to spend time away from work.<\/p>\n\n\n\n

Insurance<\/h4>\n\n\n\n

Premium contributions to life insurance, healthcare benefits, supplemental insurance, and short- and long-term disability.<\/p>\n\n\n\n

Retirement plans<\/h4>\n\n\n\n

Money contributions to a retirement account. Employers can sponsor either defined benefit or defined contribution plans.<\/p>\n\n\n\n

Legally required benefits<\/h4>\n\n\n\n

Benefits to which employers are legally required to make contributions. This includes Social Security, Medicare, federal and state unemployment insurance contributions, and workers\u2019 compensation.<\/p>\n\n\n\n

Employee stock options (ESOs)<\/h4>\n\n\n\n

Options companies give to employees to purchase company stock at a specific or discounted price.<\/p>\n\n\n\n

Employee stock ownership plans (ESOPs)<\/h4>\n\n\n\n

Plans that allow employees to earn stock in the company based on performance or tenure.<\/p>\n\n\n\n

Perks<\/h4>\n\n\n\n

Additional benefits with monetary value, such as gym memberships or store discounts.<\/p>\n<\/div>\n\n\n\n

Non-monetary incentives<\/h3>\n\n\n\n

Non-monetary incentives<\/em> (also called non-monetary compensation) are rewards that cannot be easily measured in dollars. For this reason, employers may exclude it from a total compensation calculation. <\/p>\n\n\n\n

HR leaders often refer to these non-monetary incentives as non-monetary rewards or benefits. Examples include:<\/p>\n\n\n\n

\n

Flexible work<\/h4>\n\n\n\n

Adjustments to when, where or how employees get work done to accommodate personal needs.<\/p>\n\n\n\n

Career development<\/h4>\n\n\n\n

Programs, training and other activities focused on helping the employee develop their skills and career path.<\/p>\n\n\n\n

Recreational activities<\/h4>\n\n\n\n

Non-work-related activities the employer sponsors and\/or hosts to help employees connect and have fun.<\/p>\n\n\n\n

Recognition<\/h4>\n\n\n\n

Announcements, awards or other displays of appreciation for an employee’s work, contributions and accomplishments in the organization.<\/p>\n<\/div>\n\n\n\n

Non-monetary incentives are now extremely important to total reward strategies. According to the People at Work 2024 report<\/a>, flexible work and career development are leading priorities for today’s employees. For this reason, competitive employers are now making additional efforts to communicate these by including reference to them in their job advertisements.<\/p>\n\n\n\n

Many employers also include these rewards in their total compensation statements, often opting to rename them total rewards statements to help reflect the inclusive nature of the statement. <\/p>\n\n\n\n

The difference between total compensation and employee benefits<\/h2>\n\n\n\n

The meaning of total compensation can be confusing. HR teams often refer to “compensation” as only salary and other cash compensation. And others prefer to use the term “total rewards” instead of “total compensation.” Today, total compensation is an umbrella term that encompasses both pay and employee benefits.<\/p>\n\n\n\n

Employee benefits, on the other hand, are indirect forms of compensation offered to employees in exchange for their work. Common types of employee benefits include health insurance, life insurance and paid time off (or paid leave).<\/p>\n\n\n\n

Employee benefits are extremely important to a total compensation strategy because they can help employers differentiate themselves from competitors. They improve the employee experience by supporting work-life balance and well-being, and they communicate the organization’s values.<\/p>\n\n\n\n

Benefits can also help employers create a competitive total compensation package when they can’t offer the highest base salaries. Unlike salaries, many employee benefits are tax-favored, meaning employers can offer more value without increasing their tax liability. Leveraging as many tax-favored benefits as possible is key to maximizing total compensation value.<\/p>\n\n\n\n

Tax-favored employee benefits<\/h3>\n\n\n\n

The following are a few examples of tax-favored employee benefits:<\/p>\n\n\n\n