What Makes Up Total Compensation?
Compensation in education is a highly debated topic in school districts and statehouses across the country. Some people argue that teachers are underpaid while others believe that educators make too much money. I am not going to pass judgment on that question in this post. But, whatever side of the debate you're on, it is important for school leaders, policymakers, and other education stakeholders to understand that compensation is more than just the cash payment we see in our paychecks. Total pay is made up of many pieces, some cash and some non-cash. When you add all of these together, you come up with an individual's "total compensation."
What makes up total compensation?
• Base pay: In most education systems, base pay is compensation that is guaranteed and typically paid as a "salary." It generally reflects the market value of the skills, knowledge, or abilities required to perform a job. For teachers, base pay is usually determined by a step-and-level system. Historically, base pay made up 80-85 percent of an individual's total compensation, but with rising healthcare costs that percentage is shifting quickly.
• Cost-of-living adjustment (COLA): A COLA can be a onetime bonus or base pay increase meant to cover inflation or market-required changes to an organization's pay system. They are generally calculated using federal Bureau of Labor Statistics data and the location of the organization. In schools, COLAs are often built into collective bargaining agreements. From my experience and observations, fewer and fewer businesses are giving COLA increases, choosing instead to use the funds for performance-based bonuses or salary increases.
• Bonuses: Bonus pay is usually provided as a one-time lump sum award to reward employees for performance based on set criteria. It is important to remember that bonuses do not increase an employee's base pay.
• Supplemental pay: Supplemental pay is compensation provided to employees for extra duties, responsibilities, or time spent working. Common variations of this include coaching stipends, mentoring responsibilities, or working extended day or extended year programs. (We are really good at supplemental pay in education!)
• Indirect compensation: Indirect compensation is a non-monetary benefit provided by an organization to its employees. This includes health insurance, life insurance, retirement, paid time off, discounts for goods/services, etc. These benefits are becoming more and more costly to provide.
Total Compensation Equation:
I have found in my journeys through the nonprofit, business, and education worlds that many people do not know or understand what makes up their total compensation. So, here are three suggestions to help talent managers and HR folks get everyone on the same page:
1. Make it public: Provide general information to staff on what makes up an employee's total compensation. Some districts, colleges, businesses, and government organizations include this on their website.
2. Make it personal: Some organizations provide a total compensation breakdown on individual paycheck stubs. This is another way to communicate to staff about their total compensation.
3. Make yourself available: Compensation is a sensitive subject. It is important to be customer service-focused and encourage employees to ask questions about their compensation. Remember, not everyone is an HR expert!