How much is your Salary?
Understanding the total compensation
While reading Erik Bernhardsson's article I realized that thinking about the Total Compensation makes more sense instead of salary as the single income source and I'll try to explain my thoughts throughout this article.
Salary is only one component of your total compensation, which includes the value of any benefits received in addition to your salary. Some of the benefits that are most commonly provided within your salary include:
- Paid time off (vacation days, sick days, and holidays)
- Insurance (medical, dental, disability, and/or life)
- Gym memberships
- Childcare assistance
- Retirement plans
- Employee assistance programs that offer legal advice, counseling, and other services
- Etc…
All these, in addition to your salary, will, in some way, reduce your life cost because you'll don't need to spend your base salary with any of those and this is something to consider as compensation.
Total Compensation
For a while, let's put apart the benefits mentioned above and talk about the major incomes which compose the total compensation.
Total compensation is gross income on an annual basis and commonly will be composed by:
- Base salary
- Bonus
- Equity
When looking at the total compensation, always consider the annual values because some of the components are calculated using this period and helps with the big picture.
Calculating your total compensation
Using the major components mentioned above, below the calculation formula proposed:
- Base salary is obviously part of this formula.
- The bonus should only be a part of it if it’s the “roughly guaranteed” type of bonus. In some companies, this is a component attached to the performance evaluation and usually a multiplier factor of the base salary. (with or without a cap value)
- Equity is the complex part of the formula, but in summary, is the number of grants (which is the total amount divided by the grant value), multiplied by the grant value and divided by the vesting time, and using the original value of the grant, not the present value.
If you have Stock Options you should subtract the strike price - Stock Options vs RSU)
Spreadsheet calculator
I've built a public spreadsheet to help with the total compensation calculation. The image below is the USD sheet, since equity plans use USD as currency I also build a BRL sheet converting the equity value.
There are several variables consider in the total compensation but this article aims to help you to look at your income from another perspective when evaluating a job offer or future positions in your current work.
