Deciding to accept a job offer should never be solely about money. Company culture and fit are going to be key to your happiness at work, which impacts your overall happiness and well-being.
That being said, the money part is still important. You need to ensure you understand all aspects of the compensation package to ensure you are comparing apples to apples with your current job and/or other job offers—because there is a lot more to compensation than just salary and target bonus.
Understanding Target Bonus in a Job Offer
When it comes to bonuses, companies will often include your “target” bonus in the offer, typically as a percentage of your salary. You’ll want to know if your bonus each year is determined by individual performance, company performance, or a combination of both. You’ll also ideally want to get a sense of whether or not bonuses typically pay out at or near the target.
Some companies have the “target” bonus as the absolute maximum you can expect to get, while other companies may pay out over 100% of the target bonus if company and/or individual performance is spectacular in that given year.
For example, assume you have an annual salary of $300K with a target bonus of 40% of your salary, so $120K target bonus. The compensation difference between a company that typically pays out at 80% of target versus a company that typically pays out at 150% bonus is
($120K x 150%) - ($120K x 80%) = $84,000!
Of course, these types of things are difficult to predict; companies (or entire industries) often have their ups and downs based on countless factors. But understanding the trends of recent years can be helpful nonetheless.
Employer Contributions to Retirement Accounts
Company contributions to retirement plans are something that is often overlooked. But these contributions can be very significant. Whether the company offers a 401(k), a 403(b), or another type of retirement plan, there is typically some sort of match or a non-elective employer contribution—which is a percentage of the compensation the employer contributes regardless of whether or not the employee contributes to the plan.
In my experience, I have typically seen employer contributions in the 2-6% range of employee compensation (salary + bonus). An example might be matching 50% of contributions up to 6%, meaning if the employee contributes 6% or more of their pay toward the retirement plan, the employer will add another 3% of the employee’s compensation to the plan. Or perhaps the employer contributes 5% of employee compensation regardless of whether the employee contributes.
These are just examples, as there are countless ways employers may contribute to employee retirement plans. Either way, this is additional money that you should take into account, especially since there can be more extreme situations.
A Client Example with Employer Retirement Contributions
In fact, I once had a client considering a job opportunity where the potential employer did not make any contributions to employee 401(k) accounts. In contrast, his current employer was contributing a total of 10% per year to his 401(k) via a combination of matching and non-elective employer contributions. Given his current pay of $200K at the time (salary + bonus), he was getting $20,000 per year of employer 401(k) contributions! The increase in salary he would have gotten with the other potential job became far less attractive in light of the fact that he’d be giving up this very substantial employer 401(k) contribution.
Limits to Employer Contributions for Highly Compensated Employees
For those of you who are highly compensated, do note that there are numerical limits to employer retirement plan contributions. Specifically for 401(k)s, the maximum that can go into a 401(k) from the employee and employer combined is $69,000 for those under age 50. That figure is $76,500 for those age 50+ who can make employee catch-up contributions (for 2024).
It’s also important to note that the maximum pay that can be used for computing employer contributions is $345,000. In other words, for someone who makes $500,000 per year and their employer contributes 5% of pay to everyone’s 401(k), the employee would get $345,000 x 5% = $17,250 contributed to his or her 401(k) by the employer.
Equity Compensation as an Employee Benefit
Many publicly traded companies offer equity compensation to employees at a certain level and above. This can come in the form of Restricted Stock Units (“RSUs”) and/or company stock options. Each equity grant pays out according to the vesting schedule, which is typically over the course of a couple of years. The true value of the equity compensation won’t be known until the equity is vested, because it will be based on the stock price at the time of vesting (and beyond, particularly when it comes to company stock options).
I recommend working with your financial advisor to come up with reasonable projections on the value of the equity compensation being offered. Though the ultimate payout value is impossible to predict, it should be taken into account one way or another when comparing compensation packages.
Additional Employee Benefits to Consider as Part of a Compensation Package
Any additional benefits being offered should all be taken into consideration and accounted for when analyzing a compensation package. This includes the cost of health insurance premiums (which will vary from company to company since most employers will subsidize employee health insurance premiums), company contributions to HSAs and/or FSAs, discounts on products the company sells (if the products are something you would want to purchase), personal use of a company car, if applicable, and more.
Final Thoughts on Comparing Compensation Packages
In conclusion, when given a job offer, be sure to dig through the details of what you are being offered. Don’t be afraid to ask for additional details or clarifications.
Many people focus on salary and bonuses but overlook other benefits that may significantly sweeten or dampen the overall package. Again, it’s not all about the money, but you should ensure you understand the true value of the offer as best you can.
Are you in the process of considering a job offer or a new compensation package? I’m a CERTIFIED FINANCIAL PLANNER™ who specializes in working with women executives who have equity compensation. If you have questions about your compensation, I’d encourage you to reach out here to start the conversation.
About the Author
Carla Adams is a CERTIFIED FINANCIAL PLANNER™ practitioner who specializes in helping women build strong financial plans around their equity compensation, including Restricted Stock Units (RSUs) and company stock options. With over 15 years of experience in financial services, Carla has in-depth knowledge and expertise geared toward helping clients with complex financial situations. She enjoys boiling down complicated scenarios through practical examples and down-to-earth conversations.