Landing a new job can be one of the most exciting feelings you can experience. Whether you were looking to change careers, or had been unemployed for a period of time, receiving an offer letter to join a new company is an amazing accomplishment. However, when evaluating the employment offer many people struggle to understand how to analyze whether their salary and benefits are comparable between the competing firms. Hard dollar benefits such as bonuses, and other defined compensation can be easily compared. Soft dollar benefits such as paid time off, child care, access to a gym, or even the ability to work from home are more difficult to value and compare. It is our belief there are some key takeaways (i.e. earnings potential, work life balance, and career satisfaction) when evaluating total compensation that everyone should consider before making a switch.
Hard Dollar Benefits vs Soft Dollar Benefits
‘Hard Dollar Benefits’ can be thought of as base compensation that is either guaranteed or somewhat predictable. Examples can include salaries, bonuses, overtime, and raises. Alternatively, ‘Soft Dollar Benefits’ are forms of compensation that are paid for by an employer and provided to employees at minimal cost, or free of cost. Examples include cafeteria plans, personal time off, working remotely, or company sponsored events.
The distinction between these two benefit classifications is important when self-assessing your “value” to your current employer, and becomes more challenging when trying to evaluate an offer from another company. This is why including the financial element in your analysis should be the last step before determining your next step forward. Too many people chase high salaries or high variable income in an effort to "get ahead", and in doing so potentially push themselves toward a burnout, or an emotionally dissatisfied point. In other words, if you look back on your 30 year work life and have many accomplishments to be proud of, great! But if trying to get ahead has prevented you from preparing for a life after retirement because you never spent time away from work and were defined by your professional notoriety, then you may want to rethink your work/life balance sooner rather than later.
Evaluating the “Total Compensation Package”
If you have ever been in a competitive hiring arrangement where you are trying to assess your "Total Compensation Package" you have probably tried to estimate the value of the soft dollar benefits you utilize at your current place of employment, and then tacked on your fixed, and/or variable, income to determine how much you're worth. By doing this, future recruits feel they have a bargaining chip when negotiating with the new employer. Sadly, thinking you have a leg up by quantifying your value in negotiations is not always the case. In many instances prospective employees are not able to fully assess the offering company's benefit package until after they have accepted the offer. Thus, how does one compare hard benefits with soft benefits to arrive at a mutually acceptable offer BEFORE making a major life decision?
When we work with mid-level management employees, all the way up to executive C-Suite employees, we ask them a series of questions to help them assess their current position and career path:
- How satisfied do you feel in your current position?
- Do you feel like you make a difference at your firm?
- When was the last time you received a raise, and/or promotion?
- What do you expect your career path to be with your current firm?
- Do you feel you have an appropriate work/life balance?
- What would you need today to improve your outlook for staying with your firm?
Each one of these questions is designed to illicit an emotional response that is intended to evaluate the mindset of a person in their current role. This emotional response cannot be quantified in terms of dollars, but rather in terms of overall satisfaction. By measuring the impact on overall satisfaction before beginning the interview process each person can assess the types of benefits through a 'prioritization method', rather than by a stricter 'compensation method’.
Salaries and bonuses are typically the common form of income used by employees to project their earning potential. However, as employees climb the corporate ladder there are additional forms of compensation that should be factored into future earning potential. Examples of such compensation could be stock options, restricted stock units, deferred compensation, additional personal time off, and the use of corporate vehicles. These varying forms of compensation can be more difficult to value as these benefits may be dependent upon the company’s overall economic health. For this reason it is important to change how you think about your current earning potential and the ability to sustain that compensation growth throughout the life of your career with the new company. Taking a prioritized approach will help you to create a ‘Compensation Formula’ allowing you to prioritize your sources of compensation and weigh them according to the likelihood of achievement. For example, you might decide to prioritize sources of income in this order:
This type of compensation structure allows you to compare different offers and determine which one is best suited for your current situation. However, it is important to note, you should perform this type of analysis from two perspectives: your status quo AND ten years into the future. Electing to move soft dollar benefits to the top of your compensation structure, which may translate into accepting a lower salary, can result in unforeseen long term impacts of accepting lower base compensation. For example, companies who do not offer many soft dollar benefits use a salary and bonus structure as their primary form of compensation. By taking a lower starting salary years earlier, any decision to switch employers in the future could negatively impact those futures salary and bonus packages, making your decision to weigh soft dollar benefits ahead of hard dollar benefits a bad one.
Changing jobs can come with many new and exciting opportunities, but before you make the leap be sure you have assessed, addressed, and concluded how your offer from the new company will contribute to your work/life balance, earning potential, and overall happiness. Prioritizing the elements in your compensation that are most important to you, will help you evaluate which company provides a Total Compensation Package that meets your needs, both today and in the future.