Compensation & Benefits

CORE CONTENT | 0.8 min read

In choosing a job, compensation (particularly pay or salary) is typically a primary consideration. Your pay directly affects your ability to meet financial obligations, your lifestyle, and your savings potential. While a high salary is attractive, it's important to consider it alongside other job aspects, particularly benefits. Benefits make up the rest of your compensation package and are oftentimes overlooked. These include insurance (especially health insurance), retirement plans, paid leave, stock options, flexible work arrangements, and other perks.

Were you to work a job without vision and dental insurance, for example, you would need to self-insure or pay for the associated appointments out of pocket. Having to incur such expenses or forgo certain amenities that benefits may otherwise cover could negatively affect your quality of life. Carefully weighing compensation and benefits is essential.

Though pay and benefits are important, they are not the end all be all. Even a very generous compensation plan may not feel worth it if the role is overly demanding or blurs the line between work and home life, for example.

REAL WORLD EXAMPLE | 0.5 min read

When Jose was offered two jobs, he chose the one with a salary of $68,000 but with a generous 8% 401(k) employer match over a $75,000 offer with no retirement benefits. This choice, while reducing his monthly take-home pay, led to a substantial growth in his retirement savings. Understanding that his employer would match his retirement savings each month (up to 8% of his total salary), Jose contributed $400 to his 401(k) each month, with another $400 coming from his job. Over the years, with consistent contributions and interest accumulation, his 401(k) balance grew significantly, reaching over $150,000 in a decade. This decision provided Jose with a robust financial cushion for his future retirement.

KEY TAKEAWAYS | 0.4 min read

• Compensation is what you are rewarded for doing something. Though this includes benefits, in the realm of work, “compensation” is typically used to refer specifically to money, used interchangeably with pay or salary.
• Benefits are any number of perks beyond your pay. Typically a benefits package will include insurance and paid time off (PTO).
• It is important to factor in benefits or the lack thereof with pay when evaluating an employment package.
• Though it is important, you must take a holistic look at terms of employment beyond compensation.

PRACTICE | 30 min exercise

Video Walkthrough

Premise

Analyze the two provided job listings with differing pay and benefits packages, considering a set of monthly expenses and the provided scenario. Follow the instructions.

Job 1: Tech Startup Role

Salary: $95,000/year

Benefits:

• Health insurance (50% coverage by employer)
• 10 days paid vacation
• No retirement plan contributions
• No tuition reimbursement

Location: Urban area with high living costs

Job 2: Non-Profit Organization Role

Salary: $60,000/year

Benefits:

• Comprehensive health insurance (90% coverage by employer)
• 15 days paid vacation
• 5% 401(k) employer match
• $5,000 annual tuition reimbursement

Location: Suburban area with moderate living costs

Monthly Expenses

• Money set aside for income taxes: 30% of monthly income (urban), 25% of monthly income (suburban)
• Rent/Mortgage: $1,200 (urban), $900 (suburban)
• Utilities (Electricity, Water, Internet): $200
• Groceries: $300 (urban), $275 (suburban)
• Transportation (Public Transport or Car Payment + Gas + Insurance): $300 (urban), $500 (suburban)
• Student Loan Payment: $250
• Miscellaneous (Entertainment, Dining Out, etc.): $200

Scenario

You've recently been diagnosed with a chronic health condition that requires ongoing medication and periodic specialist consultations. The estimated monthly cost for treatment and medication is $600 before insurance.

Instructions

1. Calculate the monthly pay for both roles.
   
   Monthly Salary = Annual Salary ÷ 12
   
   
2. Create a monthly budget for both job 1 and 2, with a line item for each expense.


3. For both jobs, calculate your monthly pay after taxes and expenses (M). Be sure to adjust expenses based on the job location, including the monthly healthcare costs.
   
   M = Monthly Salary - Sum of Expenses.
   
   
4. Update your budgets to allocate 20% or more of what is left over to savings for each job.
   
   Savings = 0.20 x MP
   
   For an added level, split that savings account into two or more savings goals (e.g., Emergency fund, House Down payment, Travel).


5. Calculate how much money you have left for spending (DI) during the month.
   
   Disposable Income = M - Savings.
   
   
6. Optionally, budget out your disposable income. Example line items include shopping, subscriptions and memberships, tickets, and eating out.


7. Finally, reflect on how the pay and benefits packages affect your budget in these different scenarios. Consider the trade-offs between higher pay and a more generous benefits package. Discuss how your personal preferences and life situation might influence your decision in a real-world context.

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