A Closer Look at Total Compensation

Source: Howard Risher, Compensation Benefits Review, Vol. 46 no. 5-6, October/December 2014
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The BLS data show it is a mistake to generalize or to make assumptions. It is also a mistake to rely loosely on averages.

With the cost of benefits now in excess of 40% of base pay—based on misleading averages—market pay analyses that ignore benefits can lead to invalid conclusions. It would be advantageous to assemble better survey data on the prevalence and value of benefits.

A related issue is the pressure to increase the minimum wage. The workers who will be affected by any increase are in many companies the same individuals who are seeing their benefits reduced. The loss of benefits should be factored into future research on comparative income levels.

Finally, when baby boomers retire today, they often can count on the income from a vested defined benefit. Increasingly tomorrow’s retirees will have to rely on the funds in a defined contribution plan. The data suggest many will not have adequate funds to sustain their lifestyle. There will be a growing number who decide they cannot afford to retire. For those in lower job levels their only source of income could be Social Security and typically part-time employment income.

At the macro level, these trends may not be sufficiently material to affect the conclusions from analyses similar to Piketty’s. However, for the micro analyses central to assessing a company’s total compensation levels, the trends are directly relevant.