The Total Compensation Equation: Understanding Salary vs. Total Compensation

October 31, 2022
October 31, 2022

Salary: “a fixed, regular payment, typically paid on a monthly or biweekly basis but often expressed as an annual sum, made by an employer to an employee, especially a professional or white-collar worker.” (Oxford Languages)

Salary ≠ total compensation.

Too often, we use the two terms interchangeably. But they are not the same. In addition to salary, most employees receive additional benefits in the form of total compensation

Total compensation can come in many shapes and sizes for employees. Typically, it is in the form of a compensation and benefits package when an employee is hired.

Childcare. College tuition assistance. Health insurance. Stock options. 401(k) plans. And more.

Investing some time into understanding how to measure total compensation is essential — something that can help determine whether your work is paying off. 

For example, a high base salary might be a plus, but if that’s not coupled with bonuses and other benefits, it may not feel like you are fairly compensated. It may be time to look for a new job that aligns better with your total compensation goals. 

A total compensation example might consist of:

  • $50,000 base salary
  • 15% commissions for every product sold
  • 2 weeks of paid vacation
  • Various career development opportunities 

TL;DR: It’s essential to consider all aspects of compensation when measuring your employment value. 

What is total compensation?

Total compensation is the sum of salary, bonuses, and other benefits (financial or otherwise) included in employee compensation packages.

While benefits can vary significantly from business to business, the main three buckets of total compensation packages generally include: 

  1. Base salary
  2. Paid time off (PTO)
  3. Health insurance

Organizations also include commission and bonuses (not just for sales reps!), non-monetary benefits like public recognition, and flexible working arrangements (work from home, hybrid, etc.). 

Using a total compensation formula calculator to run calculations is a great place to start. Generally, you can calculate the monetary value of your total compensation using the formula: annual base salary ($) + signing bonus ($) + total stock grant value ($) = total compensation ($)

If you want to find out how much your total compensation is for a specific time frame, add total commissions earned ($) to the formula above.

Compensation packages typically expand and evolve the longer the employee has been with an organization. Loyalty matters. Been with the company for 5, 10, or 30+ years? Expect to receive a more robust compensation package compared to new hires. 

Why is it essential for employers to calculate total compensation packages?

Total compensation reflects the actual amount of money spent on each employee. A company that provides benefits in addition to base salary may generate annual total compensation statements outlining the amount paid to employees. 

Transparency is key. As an employer, the more open you can be about employee compensation, the better — especially if your organization offers benefits on top of a solid comp plan! 

If your company does not calculate compensation packages, it’s on you, the employee, to be proactive. By tracking total compensation over time, employees can better gauge whether or not they’re being fairly compensated: Accounting for salary alone cannot give you a complete picture of your long-term pay. 

Look beyond the dollar amount on your pay stub to understand how much you’re truly earning — or, in the case of an employer, how valuable your employees are to the organization.

Understanding the difference between total compensation vs. salary

Base salary and additional compensation are not one and the same. Salary is often determined early in employment and remains fixed over long periods. 

In larger organizations, you’ll likely find salary bands — ranges of base pay that can change based on education level, tenure at the organization, job title, and other factors.

For example: An employee might earn an annual salary of $60,000 regardless of performance. Salaries typically increase over time (based on the factors mentioned above) and are automatically delivered on a schedule — usually weekly or bi-weekly. 

Salary compensation calculators are used to calculate an expected base salary. These are most often used when considering a new job offer. For example, Glassdoor’s Salary Calculator asks you to fill in your current or desired job title, employer, and location. 

Let’s say you want to see what a CMO salary could be in Sacramento, CA — no matter what employer. Fill out those fields, click “Get Started,” and boom:

Not bad, huh?

Note: There are several other similar salary calculators out there.

But again, that’s just salary. Well, technically, it includes an “Additional Pay” number. Not shown? Other benefits as discussed above.

Remember: total compensation is base salary + additional monetary and non-monetary compensation.  

In the example above, the “CMO in Sacramento, CA” earns $158,511 base pay + $72,576 additional pay for a total pay of $231,087. However, as a member of the C-suite, the CMO may have other incentives for meeting/exceeding company KPIs.

There are likely many other benefits, including PTO, health (and dental and eye) insurance, mental health days, volunteer time, and so on.

But what if you don’t have a calculator? Or what if the online calculator does not have everything you need?

How to measure total compensation without a calculator

Have no fear! We’ve got you.

Start with your annual base salary. Let’s say $50,000.

Then, build in PTO value, a number that can be calculated! What is your time worth? The number of days off times your daily salary rate (take your monthly paycheck and divide by 30). Let’s call that number $5,000 per year.

If your employer pays for insurance of any sort, determine what that insurance would cost out of pocket for you and subtract what you pay that your employer does not. That number is the value of insurance. Let’s go with $10,000 per year.

Add in bonuses and commissions. This number will vary for all (and some will not receive it). How about $25,000 per year?

Finally, add “other benefits” — retirement savings, gym memberships, parking garages, childcare help, etc. Again, this number will vary greatly ($10,000 seems like a reasonable number).

Now it’s just math (using the total compensation formula from earlier!): $50,000 + 5,000 + 10,000 + 25,000 + 10,000 = $100,000. That’s 2x your base salary.

Note: This is just an example. There may be other compensation variables included in this calculation. Also, some may be tied to performance based on set percentages and/or pay caps.

How the ideal compensation package for sales employees can cultivate a productive work environment

Commissions are an integral part of compensation for salespeople, and timing is often everything.

It’s critical for organizations to track commission-based pay as efficiently as possible. 

Monitoring employee performance and earnings can help promote alignment on objectives. It’s also a great way to keep employees engaged and incentivize them to reach bigger and better goals, increasing business revenue. 

Creating generous compensation packages demonstrates to current and future employees that you care about their success and are willing to reward them for their efforts.

CaptivateIQ can help.

Considering over 85% of sales managers would like to change their compensation plans every quarter at a minimum, versatile tools must be implemented to keep up with the agility of comp plans. (Get more insights in our State of Sales Compensation 2022 report!)

CaptivateIQ’s commission tracking software makes it easy to calculate sales compensation accurately and transparently. The platform enables users to design and automate their commission plans to limit manual data entry and ensure greater precision across the board.