Total Compensation vs Salary

By Eric

Salaries are fun because they seemingly allow you to compare the relative value of various jobs/people with a single data point. A is bigger than B, but C is bigger than A. It’s quick, it’s easy, and it’s clean. It allows us to simplify – but I would argue over-simplify.

One of the most common ways graduating students at my business school compared how they did in securing a job out of college was by salary. They would compare top-line income to see how they placed with the private sector. The problem was, in the chase for the highest salary, many important attributes were overlooked.

The argument for looking at Total Compensation is that it allows for a full view of the entire compensation package rather than simply looking at salary. Many companies aren’t able to compete on salary at the highest level (or choose not to) but try to make it up with other benefits. I’ll outline a few of the top items that I weight most heavily when it comes to total compensation, but I plan to do a multi-part deep-dive on comparing job offers in the future which will go to a much more granular level of each.

For this post, we’ll look at two jobs to see the difference between looking at salary and looking at total compensation. Job A pays $70,000 per year and Job B pays $60,000. If we look just at salary, Job A is much more attractive. However, we will see the impact of reviewing total compensation throughout this post.

Retirement Plans

One of the most common ways that companies can boost total compensation package is to offer retirement benefits. There are a variety of ways that employers can do this, but the most common is to offer a retirement contribution match.

Job A offers a 401k plan, but no employer contributions. The employee is free to contribute but will not receive a match from their employer. This leaves Job A’s total compensation at $70,000.

Job B’s employer offers a 6% 401k contribution match. This job actually sees $3,600 in extra contributions to a retirement plan provided the employee puts the $3,600 into their 401k as well. That brings Job B’s total compensation to $63,600.

Health Saving Accounts

In addition to offering health insurance – which is very nuanced, so I won’t get into it here – many employers can off-set high deductible plans by providing employees with contributions Health Saving Accounts (HSAs) or Flexible Spending Accounts (FSAs). While these contributions are generally expected to be used during the year to off-set the high deductibles, if an employee doesn’t incur much medical expense during the year, HSA money can roll over from year to year.

Job A allows employees to contribute to an HSA but does not provide any contributions on behalf of the employee. This leaves Job A’s total compensation still at $70,000.

Job B has a list of incentives to earn money from the employer to be deposited into their HSA. For example, taking an online health assessment may earn a $300 contribution. All in all, let’s assume this employer will contribute up to $1,500 per employee assuming the employee meets the incentive goals. This brings Job B’s total compensation to $65,100.


Many companies also reward their employees with cash bonuses paid out either quarterly or yearly. However, because bonuses are generally tied to some sort of metric, the money is not guaranteed. This allows employers to offer a range of bonus types that vary by employer or by function within the same company.

Some companies like to offer large pay outs but with a small chance of meeting the objectives (generally re-named as “stretch goals”). An example may be a company offering a $20,000 bonus, but employees may tell you there is only a 5-10% chance of meeting the set targets. Other companies may offer a modest payout but structure the goals such that the bonus is almost guaranteed. An example may be a $2,500 bonus, but the company has a history of paying this bonus 95+% of the time.

If Job A has the high pay-out, but almost a 0% chance of meeting the goals, there is functionally no bonus at all. It looks great on paper, but if you can’t reasonably earn it, the doesn’t change the total compensation of Job A. We’ll leave this job’s total compensation unchanged at $70,000.

If Job B has the modest bonus but the almost-certainty of receiving it, we’ll include it in the total compensation. That adds $2,500 to the total compensation of Job B, bringing the running total to $67,600.


Some companies allow for employees to expense things like cell phone bills and home internet. Of course these are to be used for work, but that doesn’t mean that you don’t also benefit personally. The ability to be reimbursed for these expenses isn’t a topic that most people think about when reviewing jobs relative to total compensation, but sometimes can be a huge benefit when added up.

To continue our running examples, if Job A offers no expense reimbursement for these two example items – maybe it’s an office job with a landline and internet at the office – the total compensation figure for Job A stays flat at $70,000.

If we assume Job B allows employees to expense their monthly cell phone bill ($100/month) and their home internet ($75/month), that adds to a large annual benefit when taken together. The total becomes $1,200 per year in cell phone reimbursement and $900 per year in home internet. Assuming an employee would have incurred these expenses anyway (who doesn’t have a cell phone and internet?), the company payment is a nice offset. That brings the total compensation for Job B to $69,700.

While the total compensation for Job B is still $300 less than Job A, the examples provided are reasonable amounts. There are various benefits and compensation-like items that companies provide that change the overall compensation for employees.

When comparing salary to salary, Job A looks $10,000 better than Job B. However, when looking at total compensation, we see that these two jobs are nearly identical. The $300 per year difference is only a difference of less than $6.00 per week.

Salary is fun because you can brag to your friends about salary – but Total Compensation gives a much clearer picture of how your job fits into your whole personal financial situation.

Patrick’s Thoughts:

The concept of total compensation vs. salary is one that is rooted in how we view financial well-being. We often think about success in terms of how much one makes a year and not from the perspective of net worth. One of the great concepts from Eric’s post above is how valuable certain benefits can be. The average premiums for a family health insurance plan are approximately $1,100 a month. Taken over the course of a year that’s over $13,200! If a company is generous with their healthcare plan, that’s not just a benefit; it’s money you don’t have to spend otherwise.

The laundry list of potential benefits is long. Some companies offer lease stipends or company vehicles. Other companies offer expense budgets or great perks. While all these things are great, there are a couple other concepts I’d like to look at that Eric didn’t include above.

Time Off

While this doesn’t necessarily seem like compensation, for some people this can be worth big money. Imagine your company offered you a three-month paid sabbatical every five years? That’s approximately 12 days of paid time off a year on top of any vacation you have. Assuming a 232-day work year and a salary of $60,000, that’s about $3,100 of money you’re making without having to come to work.

Now some people may think this isn’t a big deal, and that’s ok. For some people it’s a major deal and would definitely factor in to how they look at their overall compensation. This is an opportunity for them to travel the world, pursue a hobby they otherwise wouldn’t, or just straight up relax. We can’t look past the value that may seemingly not exist in certain situations. Compensation isn’t always bout the money.


One of my favorite examples in this category stems from the OBGYN field. A lot of people look at them and go “wow, you make a lot of money.” What a lot of people forget is that the average insurance for an OBGYN can range anywhere from $85,000 to $200,000 a year! Just think about that for a second: they pay more in insurance than the average American makes in a year!

If you’re a fresh OBGYN out of medical school, you’re probably are looking at total compensation a bit differently. Let’s say a clinic offered you a very competitive salary, but then also offered to provide you a comprehensive insurance policy on top of that. You’d be foolish not to take that in to consideration when thinking about total compensation. While this is a very specific example, every situation is going to have variables that differ.

Infrastructure and Training

At the end of the day, looking at the straight up salary figure doesn’t always make the most sense. I think this is most clearly reflected when you look at someone running their own business. They are going to make a significant amount of money in a gross sense, but they are also going to have a lot of costs. You probably hear of real estate agents bringing in hundreds of thousand of dollars a year, but many of them don’t tell you about their costs.

When you work for a big company, many of the costs are paid for by budgets and the infrastructure is already built for you. These are things that people generally take for granted that others don’t have access to. Don’t ignore the investments companies make in infrastructure and training from a compensation standpoint. These things have the capability to set you up for success in the future.

It’s not all about the salary. A broad and enticing benefits package can often serve you better in the long haul, especially if the benefits package is oriented towards investments in appreciating assets. Sure, some people will want to have control of these things themselves, and that’s ok! We all must evaluate each and every offer we get, and then negotiate it depending on our desires and our needs.


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