What price should you charge an employer for your services? In other words,
what compensation should you receive for the job you're seeking?
For most people, the first thought that comes to mind is what salary to ask for.
That's too narrow. In larger companies, salary determination is based on a
sophisticated process. The total compensation package is much more elaborate
and complicated because it also comprises a bewildering variety of incentive,
benefit, perquisite and stock-ownership plans.
Employers provide a total compensation package for a variety of reasons,
such as:
To attract and retain
employees in a competitive labor market.
To motivate and reward
employees.
To focus employees' attention
on general corporate and specific personal or product goals.
To provide employees with
group rates for benefits that would be more expensive if purchased
individually.
To take advantage of tax
breaks available to employers and employees.
Here's a way to make sense of the total pay package. It comprises four
subgroups:
Income-creation plans.
Asset- or wealth-creation
plans.
Income-protection plans.
Asset-protection plans.
This matrix defines each subgroup in terms of its purpose:
|
Purpose
|
Income
|
Asset
|
|
Creation
|
Plans that enable and encourage employees
to increase earnings and purchasing power and earnings potential.
|
Plans that increase the financial or
tangible assets of employees.
|
|
Protection
|
Plans that replace all or part of income
when employees are unable to earn income for reasons beyond their control.
|
Plans that prevent a major drain on the
financial or tangible assets or on the creditworthiness of employees.
|
Many of these plans involve contractual relationships between you and the employer
except for income-creation plans and supplement-statutory plans such as Social
Security, workers' compensation, and unemployment insurance. Almost all of them
are subject to employment, labor and tax laws and regulations, the Employee
Retirement Income Security Act (ERISA), Generally Accepted Accounting
Principles (GAAP); Securities and Exchange Commission (SEC) requirements, and
New York and Nasdaq stock-exchange rules imposed on you or the employer.
Be Prepared
Pricing the services you sell to employers is as complex as pricing
contracts for large projects or heavy equipment built to order. Employers have
the advantage because they have access to consultants, in-house human-resources
specialists, lawyers, accountants and tax experts.
Be really smart about the pricing conventions in the job market. Get your
own experts to help you, such as your accountant, broker, financial and estate
planners, lawyer and human-resources adviser.
