What are compensation statements?
A compensation statement is a document showcasing an employee’s entire compensation history and rewards for the fiscal year. While this information can also be found on employee pay stubs, these statements include details surrounding compensation and benefits that an employer provides.
The point of these statements is to provide a full picture of how an employee is being compensated by their employer based on pay and benefits. It tells the whole story about the pay package offered by the employer by including both direct and indirect compensation that an employee receives.
Once these statements are obtained, it’s likely that an organization will utilize compensation management software to visualize and store all data, better align compensation budgets, and use the data provided for reporting purposes.
The same can be said for benefits administration software. These tools can showcase all benefits data, offer a benefits portal to ensure employees can access all necessary benefits plans and packages, and make it easy for employees to enroll in the benefits they care about most. These tools can also assist administrators in creating total statements from compensation history information to share with relevant company stakeholders.
Types of compensation statements
Compensation statements can be broken down into three main sections or be three separate statements. An employer may ask for all three to be in one statement or for them to be broken into three documents depending on the information needed and the purpose.
These types include:
- Direct compensation: This statement will include base pay and overtime, as well as commission, bonuses, and incentive pay.
- Indirect compensation - taxes: For tax purposes, an indirect compensation statement will include social security tax, unemployment tax, and workers’ compensation insurance details.
- Indirect compensation - benefits: Depending on the benefits an employee receives, this statement will cover insurance regarding health, dental, vision, life, and disability. It may also cover 401(k) details, accrued paid time off, relocation expenses, educational assistance, and health savings accounts.
The total amount listed in both the taxes and benefits sections of a compensation statement is sometimes referred to as a “hidden paycheck” because an employee may not know that an employer is offering them unless they know it exists or is told by their manager.
Employers shouldn’t assume that all of their employees know the total dollar value of these benefits, while an employee should have all of the information available to them regarding what is provided by the organization.
Basic elements of total compensation statements
If an employer is asking an employee for a compensation statement, specific details can be expected within the document.
These elements include:
- Salary or hourly wages
- Medical, dental, and vision insurance
- Employee bonuses
- Stock options
- Profit sharing
- Paid leave for sick, vacation, personal, voting, bereavement, jury duty, and medical purposes
- Employee assistance program
- Tuition assistance
- Merit pay
- Life insurance
- Workers’ compensation
- Social security
- Relocation assistance
- Mobile phone stipend
- Company vehicle
- On-site childcare
Benefits of using compensation statements
Although compensation statements are not legally required, there are some benefits for both an employer and an employee when they’re created and shared.
- Employees have transparency surrounding compensation information, which will encourage them to think beyond just the dollar amount of their salary and better understand the total value of their compensation.
- Showcases the employer's entire investment into an employee beyond just a salary or hourly wage.
- Allows employees to know if they’re being paid fairly and how their compensation and benefits may compare to what other organizations are offering their employees.
- Makes it possible for a company to demonstrate with data how they’re investing in their employees and potentially identify areas that need improvement.
- Provides a boost in employee morale and loyalty when they have direct and indirect compensation details and know they’re fairly compensated for their work.
- Specifies to job candidates interested in joining an organization the total value of the rewards within a company during the recruitment process.
Compensation statements best practices
To make sure that no details of what an organization is offering its employees are overlooked, there are best practices to follow when creating a compensation statement.
- Keep it simple and concise: Steer clear of unnecessary or complex jargon and complex calculations or mathematical explanations of dollar amounts. Make sure the statement has details that are easy to understand and are organized the right way.
- Make it branded: When incorporating color-coded graphs or pie charts, it’s a good idea to utilize branded colors or themes that are unique to the organization.
- Incorporate marketing elements: A compensation statement is a type of marketing communication, especially when considering that it can be used to sell a company to current employees. It should align with company culture and values.
Mara Calvello
Mara Calvello is a Content and Communications Manager at G2. She received her Bachelor of Arts degree from Elmhurst College (now Elmhurst University). Mara writes customer marketing content, while also focusing on social media and communications for G2. She previously wrote content to support our G2 Tea newsletter, as well as categories on artificial intelligence, natural language understanding (NLU), AI code generation, synthetic data, and more. In her spare time, she's out exploring with her rescue dog Zeke or enjoying a good book.
