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by Linda Trainor | March 10, 2009

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The total compensation statement was one of the first serious employee communication tools used by employers. It was introduced decades ago to help employees understand and appreciate the value of their "total compensation package." In the early days, only very large organizations could afford to produce these communication tools. But technological advances have made it possible for almost any employer to generate some form of total compensation information, personalized for each employee.

Katie Ervin, director of human resources for the Sac and Fox Casino in Powhattan, Kansas, recently distributed the company's first-ever total compensation statement for 300 employees. It was produced totally in-house at "minimal cost."

Since Ervin is relatively new in her job, she's dealing with a lot of challenges and opportunities, but felt this effort should be a high priority. "Employees often are not aware of the business side of things." For example, she says employees typically don't understand the magnitude of the financial burdens employers accept for providing jobs, training, benefits, etc. "I feel that educating employees is very important. They should be aware of the things that involve them. At the same time, in these difficult days we have to do what we can to retain good workers, and this kind of report is a good place to start."

Benefits of personalized communication tools. Other organizations agree with Ervin's focus on helping employees understand that there's much more to their compensation package than the net amount shown on their paycheck. Employers and consultants emphasize that helping employees learn to appreciate the value of their "hidden paycheck" can lead to improved morale, reduced turnover, increased productivity, and lower operating costs.

"I feel giving the employees a total view of what the company is doing for them opens their eyes and they can see the evidence from both sides, even though sometimes they think they don't care about the company's side," Ervin explains. Ervin says she's received "rave reviews" from many employees. Many employers say that one of the biggest benefits of these reports is their retention value. They're like a decision checklist that employees use to evaluate offers from other employers and often succeed in keeping employees from leaving.

Potential pitfalls. Even though total compensation statements are generally accepted as powerful employee communication tools, there are some potential downsides to consider. When all the compensation elements (including mandated benefits such as workers' compensation) are laid out in an easy-to-understand format, some employees complain that they don't want the benefit ... they'd rather have the money. Ervin says this shows that some employees don't understand the legal requirements of what employers have to provide, and points to the need for employers to do a better job of communicating.

There are other things that can diminish the effectiveness of a total compensation report. Perhaps the most common danger is the possibility of reporting inaccurate, incomplete, or misleading data. For example, any error in basic payroll data, such as a wrong base pay rate or exempt/ nonexempt classification code data, can impact how benefit coverage and costs are determined. The more data sources you use, such as payroll, HRIS, or healthcare and/or retirement plan data from third-party administrators, the higher the possibility of error.

To help protect against inadvertent errors, most employers include a disclaimer statement in their reports. But because the information is so personal, the disclaimer isn't particularly reassuring to employees. Therefore, it's very important to carefully review the data and test the output before publishing and distributing your statements.

Even if your data are correct, the program required to assemble the information for distribution should be tested for potential errors. The output program can be as simple as an Excel spreadsheet or as complex as a custom-designed program that includes sophisticated error-checking utilities.

What to include in your statement. Most employers agree the benefits of distributing total compensation statements outweigh the potential pitfalls if you take care to protect the integrity and accuracy of the information you're providing. In other words, avoid including information that is subject to complex calculations unless you have the time and resources to check and double-check the output for each employee classification (e.g., executives, managers, exempt, nonexempt, union-represented). A modest report might simply include a summary of the company's total contribution to the employee's compensation such as:

  • Base pay.

  • Overtime and/or merit pay.

  • The organization's cost of company-sponsored health, welfare, and retirement benefit plans as well as legally mandated benefits.

Of course, the more detail included (e.g., company costs vs. employee costs, voluntary benefit options, benefit/compensation plan highlights), the more useful the report can be as a communication/ retention tool and morale builder.

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Filed Under: Workplace Issues

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