Guide to Understanding Compensation in Job Descriptions

As you scroll through job descriptions on your job search, you may notice that some jobs post a salary range plus a list of benefits, which represent the compensation package being offered for the job.

While your salary will be the weekly or biweekly amount paid to you before taxes, the total compensation package can have a significant impact on your lifestyle and ability to save money.

This article explains workplace compensation, why it is important, and how to approach compensation during your job search to achieve the best mix of salary and benefits for you.

What Is Compensation?

Compensation refers to what you receive in exchange for your work. Employees, independent contractors, and businesspeople all receive compensation for work done.

Within the context of employment, your compensation includes your pay and the incentives or perks offered by your employer. In addition to salary, you may see the following benefits listed in various job descriptions:

• Health insurance

• Dental insurance

• Vision insurance

• Bonuses

• Commission

• Tips

• Paid time off

• Childcare

• On-site gym

• Flexible work hours

• Hybrid or remote work options

• Subsidized education or training

• Stock options

• 401(k) matching

Why Is Understanding Compensation Important?

Two jobs with identical salaries but very different compensation packages can result in a significantly different lifestyle and spendable income. Understanding the compensation vocabulary positions you to negotiate a package that gives you what you need.

For example, health, dental, and vision insurance help offset the costs of health-related services. If you were to experience an injury or illness without health insurance, the costs could wipe out your savings and put you into debt. On the other hand, if you have employer-sponsored health insurance, your out-of-pocket expenses would be limited, and you would be in a better position to weather the challenge.

A compensation package can also support work-life balance. For example, if you have young children and need to take them to school in the morning, being able to start work after dropping them off saves headaches and hassle. Alternatively, being able to work from home two days a week and avoid the commute can reduce your overall stress. Paid time off gives you the ability to rest or vacation without losing income.

Your compensation package may also help you prepare for the future. Some employers will subsidize education or training. Others match your annual 401(k) contribution, which helps you build up retirement savings faster.

How to Identify the Best Compensation Mix for You

As you look through job descriptions, and later when you get job offers and negotiate salary and compensation, you want to understand the best combination of salary and benefits for you. These steps can help you identify the compensation package that will best meet your needs and lifestyle.

1. Required Minimum Salary

The first and often most important part of your compensation is salary. To determine the salary you need, look at your current budget.

If you don't have a budget, Mint is a well-rounded budget app you can use for free. The question you need to answer is: What take-home pay do you need to meet your monthly financial obligations and lifestyle needs?

You may establish a range of pay that will work for you. It's critical to identify the minimum that you require, so you don't go below that number. Remember, your take-home pay is what is left after taxes and other deductions are removed. Here is a calculator you can use to determine that number, although you'll need to know the specifics of any job offer to assess the deductions accurately.

2. Current Needs and Goals

Once you know your minimum required salary, you're ready to look at the most important benefits. There is no one-size-fits-all option. The compensation package that works for you will depend on your stage in life, preferences, and needs. There is no one-size-fits-all option.

If you are under 25, on your parent's insurance plan, or married and covered by your spouse, health insurance may not be the highest priority. However, if you do not have coverage, a plan through your employer is likely more affordable than buying one through the marketplace.

If you are in your late 30s or 40s and have yet to start saving for retirement, a company matching your 401(k) contribution may help you accelerate the savings process and make up for the lost time. On the other hand, if you are in a strong position with retirement savings, this option is less important.

For some parents, remote or hybrid work makes life much easier. On the other hand, if the office environment energizes you, then a remote position is not a match.

Walk through the list of possible benefits under "What Is Compensation?" in this article and think about which of those will most benefit you, then prioritize your list.

It's not guaranteed that the employer who hires you will offer all of the benefits and perks that you want, but having a clear idea of what you want puts you in a position to identify the best match for you.

3. Questions to Ask a Potential Employer

Once you've received a job offer, it's time to get into the specifics of the compensation package. This will help you understand your effective take-home pay and your entire compensation package.

Here are questions you can ask to get the information you need to fully understand your salary and compensation. Not all of these questions will apply to every offer:

• If they offer health insurance, ask for a summary of key programs and costs. Also, ask how much you will pay each month for coverage, as many employers pay a portion and deduct the rest of the premium out of the employee's paychecks.

• If you are in a same-sex or domestic partnership, ask if your partner is eligible for benefits and what that would add to your cost.

• Is there dental and vision insurance? Ask for the specifics of what is covered.

• If they offer a flexible, hybrid, or remote work schedule, ask for the specifics. On a hybrid schedule, who decides which days are in-office versus remote? For remote positions, are there ever training or team meetings that require you to be at the office?

• For publicly traded companies, you may ask if employees can purchase shares and if they get a discount.

• How often will your performance and salary be reviewed?

• Are there any career development programs or opportunities for education and training?

As you look at the benefits of a job offer, you may see additional questions to ask. Before you accept is your opportunity to dig into the fine details.

4. Understanding Eligibility Requirements

Many employers have a trial or training period before a new employee qualifies for benefits. This period can range from one month to a year, depending on the employer.

In other cases, there may be specific programs only available to employees who have been with the company for a few years. Educational reimbursement programs sometimes require either your manager's approval or a few years with the company before you can qualify.

When you take the time to ask questions and clearly understand the full compensation package before you accept the job, you have the opportunity to negotiate.

Compensation Is More Than Salary

Understanding your compensation package helps you negotiate the best mix of salary and benefits for your current needs and lifestyle. Benefits and perks don't replace salary, but the right benefits can make your life easier now and in retirement.