The primary takeaway message from any total compensation statement is that the cash compensation received by employees is only one element of the financial rewards provided by the employer. The dollar value of benefits – medical and dental insurance, life and disability insurance, retirement benefits, etc. – easily makes up at least 30% of typical compensation and benefits packages.

But what about including other elements of an organization’s EVP (employee value proposition)?

In the January 2012 edition of Workspan, John Bremen and Laura Sejen of Towers Watson discuss the evolving understanding of the relationship between total rewards and EVP. “An organization’s EVP,” they write in their article, “encompasses jobs, culture, colleague, mission and values, as well as total rewards.” In this model, an employer’s total rewards program is one (very important) element of the overall EVP, though not synonymous with the EVP.

So does including other elements of the EVP enhance or detract from the core total rewards message which is at the heart of a total compensation statement?

What we have seen in the communications that we create is that, in most cases, including other key elements of the employee value proposition creates a more robust and effective total compensation statement. While a total compensation statement should not be an employer’s only way of communicating key elements of pay, benefits and EVP, it is definitely one of the most important pieces of an overall employee communications program. Taking the opportunity to remind employees about the many advantages of a particular workplace – in addition to strong pay and benefit programs – should be seen as a springboard for ongoing communications about both total rewards and the overall employee value proposition.

Since for most employers the cost of health coverage is by far the biggest employee benefit cost, just put the numbers on the W-2 forms, send them out, and be done with it. Who needs to bother with total compensation statements?

I’d argue (and, admittedly, I may be a bit biased on the subject) that it’s not quite that simple. Here are three reasons why W-2 forms aren’t going to cut it for employers committed to getting across the total rewards message to their employees:

• Costs reported on W-2 forms include both employer and employee costs – The dollar amount to be included on employees’ W-2 forms “generally includes both the portion of the cost paid by the employer and the portion paid by the employee,” according to an analysis of the regulations published in the Journal of Accountancy. So while the dollar amount that shows up will no doubt make employees more sensitive to the total dollars being spent to provide health coverage, it will not immediately be apparent how much is paid by the employer as opposed to the employee.
• Desire to provide context – A total compensation statement gives an employer the opportunity to provide context, giving employees information that goes beyond the dollars and cents. Does your coverage stack up especially well against other employers in your industry or your region? Has your company managed to hold down increases to employees’ premiums? If you have a unique angle to share on your organization’s health care coverage it will be far easier to communicate it through a total compensation statement.
• Benefits in addition to healthcare – Other benefits an employer provides – retirement, disability insurance, life insurance, work/life balance, etc – are not covered by the new W-2 reporting requirements. So if your organization has a strong story to share when it comes to total rewards, it won’t be able to do so through a W-2.

Ultimately, telling your total rewards story is really what a total compensation statement is all about. A total compensation statement shows employees that their full package of wages and employee benefits is far richer than they realize when they simply look at a paystub. Or their W-2.

The glass-half-full perspective is provided by Marc Freedman writing for the Atlantic. The article, Old Dogs, New Tricks: Why More Seniors are Starting Companies, shows things in a pretty favorable light. Freedman highlights some interesting trends, such as the fact that for 11 of the 15 years between 1996 and 2010, Americans between the ages of 55 and 64 had the highest rate of entrepreneurial activity of any age group. Or the fact that the number of Americans over age 50 entering divinity school has doubled since 1990. These and similar observations point to a generation that is voluntarily staying in the workforce and contributing in meaningful ways to the economy and society.

The Wall Street Journal gives us the glass-half-empty story. In an article entitled Oldest Baby Boomers Face Jobs Bust, E.S. Browning paints a very different picture:

Many older Americans fear they will be working well into their 60s because they didn’t save enough to retire. Millions more wish they were that lucky: Without full-time jobs, they are short of money and afraid of what lies ahead. . . .

Older Baby Boomers are trying to postpone retirement, as many find their spending habits far outpaced their thrift. With U.S.unemployment at 8.6%, and much higher among people in their teens and 20s, younger members of the labor pool accuse Boomers of refusing to gracefully exit the workplace.

But their long-held grip is slipping, as employers look past older Americans to younger, cheaper workers.

One statistic from the Journal article stands out: workers in the 55 to 64 age group have the longest average duration of unemployment of any age group – 56.6 weeks. So while there are many Baby Boomers who are launching “encore careers” or otherwise finding gainful employment in today’s economy, for those older Americans who are searching for work the way forward may not be so clear.

So, obviously, these HR pros are spending lots of resources on employee benefit communications, right?

Well, for the most part, that is not the case. According to the survey . . .

• 36% of large employers and 66% of midsized firms do not have budgets dedicated to benefit communications
• Of those HR professionals who are lucky enough to work for organizations that do have dedicated benefit communications budgets, roughly half responded that their budgets have not increased over the past year. Overall, respondents believed that their communications budgets would remain stagnant over the next couple of years.

To be sure, ADP’s findings are both interesting and a bit disappointing. One would think that employers would “get it” when it comes to understanding the importance of employee communications in general and benefits communications in particular. As I note often when speaking with both current and potential clients, compensation and benefits are effective as tools for employee engagement, retention, etc only to the degree that they are understood and appreciated. Total compensation statements are certainly one effective means by which to educate employees and increase appreciation, but there are other means as well, as this article points out. The key lesson for employers is that, without appropriate communications, it’s likely that benefits will go underused and underappreciated, ultimately resulting in companies not achieving the ROI they might otherwise realize from the investment in compensation and benefits.

Taylor notes that benefits make up roughly one-third of most employees’ total compensation packages, so making sure to maximize the benefits that are available is critical.

One of the easiest places to find “free money” is to contribute to your 401(k) or other workplace savings plan at least enough to get the full employer match. Contributing less means that you’re leaving money on the table – money that can be used to build a nest egg for the future.

Of course, there are other areas to pay attention to – checking carefully to make sure you are choosing the optimum level of health insurance, taking advantage of opportunities to purchase life and disability insurance, etc. The key is remembering that benefits are a significant part of your total compensation package – making sure to choose wisely during open enrollment is an important part of maximizing your total compensation.

• Do Happier People Work Harder - Two researchers discuss their findings on employee engagement.
• Robert Reich reflects on changes in the U.S. economy over the past several decades in a piece entitled The Limping Middle Class.
• And, finally, an article from the Washington Post: As Workforce Ages, Industries Struggle to Prepare for Wave of Retirements

Enjoy the holiday.

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The first comes from economist Jared Bernstein’s blog where he notes that real compensation – i.e., wages and benefits, adjusted for inflation – continues to fall.

The second tidbit, from CNNMoney, discusses a recent Mercer compensation survey which found that the average increase in base pay in 2012 is expected to be 3%. But employers don’t plan on evenly distributing increases across the board. According to the article,

The top-performing employees — just 8% of the workforce — will see their salaries increase by an average of 4.8% next year, the survey said, compared to average workers who will see their salaries rise 3.1%. The weakest performers will be lucky to see anything at all. On average, they will receive a 0.3% pay increase in 2012, the survey found.

Considering the first two articles, maybe the third article shouldn’t be too much of a surprise. According to Bloomberg:

Frustrated employees are voluntarily quitting their jobs at the highest level in almost three years as confidence they will find another stabilizes, even with unemployment at about 9 percent for more than two years.

So, are employers being prudent, investing in their best performers, or are they missing the forest for the trees and damaging their longer term prospects? Only time will tell, of course, but when the economy does finally turn around in a decisive way it will be interesting to see whether those companies that are perceived as having stuck by their employees when times were tough will gain a competitive edge over those companies that are seen as having been more fickle.

Just yesterday I came across an article describing twenty-one endangered workplace benefits and, indeed, there are countless employers that have survived the Great Recession by, among other things, cutting back on both wages and benefits. But there are also organizations that continue to provide employees with extremely competitive total rewards packages. Such organizations have compelling stories to tell both current and potential employees, and are well positioned to emerge stronger than ever in the months and years to come. Effectively communicating the total compensation message can only help cement these organizations’ positions as strong competitors and employers of choice.

How are you telling your organization’s total rewards story?

The basic question Indiviglio asks is: would individuals – as well as the economy as a whole – be better off if there were less secrecy around what people earn? He cites two examples where pay is more or less public knowledge – Wall Street and corporate CEOs. In both cases, an argument can be made that wages have gone up far faster than overall levels of compensation in part because of the information that is available; once individuals know how much others are making for similar work there is upward pressure on wages.

But what about those people who aren’t corporate titans or Wall Street tycoons – what benefit is to be gained by knowing what someone in the next cubicle brings home? According to recent research, there could be some real positives:

Even if compensation transparency doesn’t cure inequality, however, it could make the labor market more efficient. Economists David Card, Enrico Moretti, and Emmanuel Saez from Berkeley and Alexandre Mas from Princeton, recently published a research paper that examined what effects more information on pay has on worker satisfaction. In California, all state employee salaries are public information. The researchers informed University of California employees of a website containing this information and analyzed their job satisfaction after those workers obtained pay information.

The results were what you might expect for those whose pay was below average within their peer group: they weren’t thrilled. They were more likely to be unsatisfied with their pay/job and search for new work. The worse the individuals’ pay was relative to the median, the worse their satisfaction. Those at or above the median, however, experienced no change in job satisfaction or job search intention.

These economists conclude that pay transparency just makes workers who are on the low-end of the pay scale feel worse about their jobs, so it accomplishes little. Linda Barrington notes, however, that this contention misses a benefit of being unsatisfied: the likelihood of moving on.

In theory, those who are paid less than their peers are likely to be poorer performers. Since managers want strong performers, these people would likely be better off — from both their standpoint and that of management — to look for work elsewhere. Their talents and abilities might be better suited to another job, which would match that improved performance with better pay. The previous employers could also then find new employees for the newly vacant positions who could better fit their mold and meet their expectations.

So, should we start encouraging more sharing about what we all make? The key to that question really has to do with two words in the paragraph above – “In theory.” In theory, we are all rational economic actors and, as such, we would welcome the greatest degree of transparency possible. But, in reality, there are powerful emotions tied in to the value we assign to ourselves and the jobs that we do. Whether or not individuals would be better off knowing more in this case might be an area for further research not just by economists but maybe by psychologists as well.