Salary and Compensation – How to compare packages
When talking to candidates about an assignment I am often surprised about the limited questions I receive around how the overall package is broken down. Most candidates still tend to focus very much on the basic salary being paid as the primary consideration despite the fact that when all the components are taken into account the overall package value can vary considerably. As can be seen below there are a wide range of benefits and elements to the package you are offered and it should be viewed in totality particularly when comparing it to your current package. Not only will this help you evaluate the value of your potential move it will also assist in your ability to negotiate a better offer.
Below I have listed some of the key elements of the package and discussed some of the considerations you should make.
Bonus – this can and often does contribute a significant amount of the overall package depending on the role. When considering bonus schemes the first point to establish is how it is calculated and to what extent you can individually affect the level of pay out. Schemes can be calculated in a number of ways but are broadly based on either company performance, individual performance or a mixture of the two. In fact, many of the larger businesses may actually have a number of schemes in place which have very differing criteria and rewards but all add up in your total package. These schemes are often relatively complicated with a large number of variables but to be fair to the employer they are designed to try and give you a number of ways to achieve bonus (rather than not achieve). Again, some schemes have variable pay out levels i.e., differing levels of results correspond to differing pay out levels but others are just a straight pay out or non-pay out.
When discussing the package of a new role you should ask the recruiter or employer as to what levels of bonus have typically been paid out in the past. Although this is no guarantee on what you may receive in the future it will give you best possible indication of how achievable the bonus is and the likely level of pay out. For those strongly based on company performance you need to look critically on where the business is on its journey and growth story and to establish how it is performing against the targets it needs to hit to pay out. During the pandemic and the current economic challenges for obvious reasons bonuses were more difficult to achieve but as the market improves so should bonuses and this has to be an important consideration for anyone thinking of changing roles.
Although bonuses are just that – a bonus – for mid to senior roles they do contribute to a significant proportion of the overall package and so need to be investigated and understood in detail.
Car or car allowance – many mid to senior roles will be provided with either a car or car allowance. The decision which option to choose is a personal one of course but it is likely to be influenced by a number of factors. Changes to taxation have meant that if you are not covering a lot of business miles the tax on a company car may be prohibitive. The exception now being electric vehicles were if you are lucky enough to be given this as an option it can provide a very tax efficient option. If you go for the cash allowance here are a variety of options to finance a car including lease, Personal contract plans and a variety of other financing options. Either way you are able to attribute a value to this element which will allow you to compare and contrast against your current package.
The second element to consider car wise is whether the car is fully expensed or whether just business mileage is covered. Although there are tax implications for a fully expensed car if you are cover a reasonable number of personal miles whether that be commuting longer distances due to hybrid working or socially, you are likely to benefit. Lower emission, hybrid and electric vehicles will enable you to lower you tax bill on both a company car and fuel card.
Share options and stock – one thing I have realised over many years of recruitment is that there more stories about the money people could have made from share options as opposed to the money that has been made. Given the cyclical nature of our economy and volatility of share prices it unfortunately does often come down to timing – Joining a company at the beginning of a successful turnaround could be very rewarding or of course a rapidly growing start up. Given the likely timeframes i.e., the fact that many schemes vest after a 3-year periods you are only likely to gain where you believe the medium-term prospects for the company are strong.
Clearly stock grants are different and do represent an opportunity to gain additional value that may rise (or indeed fall).
Pension – this is another major contributor from a package perspective. There are different types of schemes provided by employers but the two key areas to identify are the levels of contribution you are required to make and the level of contribution they will make on your behalf. The more senior the role the higher the contributions are likely to be but broadly speaking average contributions are likely to around the minimum 3% to 5% of basic salary. Many will range from 5% to 10% and above this level is a very strong scheme.
Private health – generally this benefit is provided with either cover for the individual or cover for the family. Some organisations may provide individual cover but with a nominal charge to extend the cover.
Other benefits– there are a whole host of other fringe benefits that employers may offer. This is an area which has grown in popularity with the ever-increasing focus on wellness. This could range from free gym membership, access to support helplines or indeed the paying of home broadband etc. Fundamentally they are all benefits which are taxable and although you are only going to pay possibly 40% or 45% in tax i.e., they are still a benefit, they are perhaps not worth as much as you might think. Again, it is worth calculating the net benefit to you in weighing up the overall package.
Ultimately different candidates will put different weighting on elements of the package depending on the importance to them. Pension contributions for instance may be less important to those earlier in their career. Either way I would urge that at an appropriate time as you progress through the recruitment process that you need to ask for and weigh up the full elements of the package and evaluate how it compares to your current package. I have experienced situations where a £15,000 or £20,000 increase on a basic salary has actually been all but wiped out by a package which is inferior in every aspect.
Make sure you push for the exact detail so that you are able to manage your own and the prospective employers’ expectations.