What is total compensation? Breakdown & key examples

You’ve been courting this candidate for months. The profile fits perfectly. Every interview gets rave reviews from both sides. Plus, you’re offering 10% more in base salary than the competition. It’s in the bag.
Then they pass. “Your competitor offered some great perks. Stuff that will really make my life easier. I just couldn’t turn it down.” Your compensation package includes all the same things, but you got hung up on salary and never bothered to lay out the rest. Now your dream hire works for someone else.
If you’ve ever been blindsided like this, you’re not alone. And the answer usually isn’t more money. It’s knowing how to talk about total compensation: everything you offer your employees. This article breaks down what it actually includes, why it matters, how to calculate it, and how to communicate it properly.
What is total compensation?
Total compensation is the full value of everything an employee receives in exchange for their work. Base salary forms the foundation, but it also incorporates bonuses, benefits, retirement contributions, perks, and even non-cash compensation. It’s the real cost of employing someone and the real value of a job from the employee’s point of view.
Understanding total compensation helps you build stronger, more competitive job offers, benchmark roles with a compensation survey, and give employees a clear sense of how and where they benefit beyond take-home pay. It’s also a key tool for fostering a transparent culture, especially when questions about pay equity or fairness crop up.
Why total compensation matters
Salary gets all the attention, but it’s rarely the whole story, and if it’s all you focus on, you’re missing key levers for hiring, retention, and morale. Looking at total compensation gives you a more accurate read on what each role really costs, and what each employee really receives. It also gives you the language to explain value, which pays off if you’re ever asked, “Am I being paid fairly?”
Helps attract and retain top talent
When candidates understand the full value of a job offer, they’re more likely to see your company as competitive, even if your base salary isn’t the highest. And once they’re in the door, transparency about opportunities for bonuses, extra benefits, and perks can make them more likely to stay.
Improves compensation transparency
Being upfront about what’s included in the compensation package builds trust and helps prevent confusion down the line. It also gives managers and recruiters a framework to talk about pay, something that’s increasingly important as pay transparency laws take hold in more states and countries.
Clarifies employee value beyond salary
Many employees undervalue their total compensation because they simply aren’t aware of all the benefits the employer offers. A clear pay structure, paired with a full breakdown of benefits and perks, helps them see what your company really invests in them.
Encourages employee satisfaction and engagement
When people feel fairly compensated—in pay, time off, support, and perks—they’re more likely to be engaged at work. A comprehensive compensation plan reinforces that sense of fairness.
Supports pay equity and fairness initiatives
Tracking all the components of total compensation makes it easier to spot and fix pay gaps across roles or demographics. It also gives you real data to back up your decisions and connects them to a broader compensation philosophy centered on fairness and performance.
What does total compensation include?
If you’re not entirely clear yourself on what’s in each employee’s compensation package, it’s hard to compare roles or explain the value of certain perks and contributions to the team. Defining each piece up front helps develop a shared understanding across your entire business, which makes it easier to stay consistent (and fair) across departments. Your finance team will also thank you for looking at the full cost of maintaining your team beyond what’s on the payroll.
The total compensation meaning comes down to this: it’s the complete value of what your employee earns, not just their salary. Once you've got that framework in place, it’s easier to benchmark, identify gaps, and align communication throughout your business.
Base salary
This is the fixed amount an employee earns each year, before any extras like bonuses or overtime. It’s the most familiar number and usually the biggest chunk of any compensation package, so it’s a good starting point for discussions with employees and calculations.
Bonuses and incentives
These are variable payments tied to performance, goals, or company results. They can change from year to year, but if your company typically offers bonuses, commissions, or milestone payouts, you’ll want to include them.
Equity or stock options
This includes any ownership stake your employees receive, like stock options or RSUs. Even if it’s not cash today, it’s still part of the long-term value you offer as an employer, and it belongs in the total compensation calculation.
Health, dental, and vision insurance
These are employer-provided insurance plans that cover medical, dental, and eye-care costs. They don’t show up in take-home pay, but they reduce your employees’ personal expenses and provide essential financial security if health problems arise.
Retirement contributions (401(k), pension)
These are funds that you, the employer, contribute toward an employee’s future retirement, usually through 401(k) matches or pension programs. Employees might forget about these payments since they make their own contributions, so it can help to point them out when presenting your compensation package.
Paid time off (vacation, sick leave, holidays)
This is paid leave for things like vacation days, sick days, and company holidays. Since employees still earn full wages or salary while taking time off, this has real dollar value and counts as compensation.
Wellness and mental health benefits
Therapy stipends, wellness programs, gym memberships, or subscriptions to mental health apps, all of these support your employees’ mental and physical well-being and are worth tracking.
Perks (commuter benefits, stipends, learning & development)
These are employer-covered extras that lower out-of-pocket expenses. Typically, this category includes things like public transit passes, continuing education stipends, meal per diems, or home office allowances.
Non-cash compensation
This is anything valuable that your company provides that isn’t paid in cash. Examples might include relocation support, legal assistance, a company car, or even flexible scheduling. If it saves your employee money or gives meaningful value, it’s part of compensation.
How to calculate total compensation in 8 steps
When employees don’t understand how your company values their contributions, they’ll fill in the gaps themselves, which can sometimes lead to confusion and mistrust when different people take into account different numbers. Having a clear, repeatable method for calculating total compensation helps your HR team communicate consistently, back up decisions, and reassure employees that you recognize what they bring to the table.
Here’s how Morgan, an HR manager, works through the numbers for Jordan, a customer success manager at Acme Co.
1. Start with the annual base salary
Even though it’s not the only important figure, base salary usually makes up the bulk of your employee’s compensation package, so it’s the first number you’ll consider.
Example: Jordan earns $28 per hour and works a 40-hour workweek. Over 52 weeks, Morgan calculates that Jordan earns $58,240 in base pay.
2. Add yearly bonus and incentive payments
Performance-based pay can vary, but it directly impacts your employees’ take-home earnings and should be included early in the total.
Example: Jordan earned a $3,000 annual performance bonus and a $1,000 team incentive last year. That’s an extra $4,000 in cash that goes straight to Jordan’s bank account.
3. Add the employer’s contribution to retirement plans
This is money that you, as the employer, invest directly in your employee’s future security. Unfortunately, it’s easy to miss if you only focus on wages, despite being one of the most significant contributions to total compensation.
Example: Acme Co. matches employee 401(k) contributions up to 4% of base pay. Jordan contributed $2,330 last year, so Morgan adds another $2,330 to the total compensation figure.
4. Estimate the value of health insurance premiums paid by the employer
Premiums don’t show up anywhere on a pay slip, but they save your employees real money every month and provide valuable peace of mind.
Example: Jordan’s individual healthcare plan, which includes vision and dental, costs Acme Co. around $10,000 per year.
5. Add paid time off (PTO) value
Even hourly employees accrue PTO and, if your state requires payment or reimbursement, that money counts toward overall compensation.
Example: Jordan receives 15 days of paid time off per year. At an hourly rate of $28, that adds up to $3,360.
6. Estimate the value of equity or stock grants
Equity might not feel immediate, but it’s part of the overall offer, especially in fast-growing companies looking to incentivize loyalty and supplement base pay.
Example: As a long-standing employee, Jordan receives stock units valued at $2,000 annually.
7. Include any other perks (commuter, meals, stipends)
Perks help your employees reduce their out-of-pocket costs and contribute to their quality of life. These comparatively small amounts can make routine activities easier or more affordable, so it’s worth highlighting them.
Example: Acme Co. pays for Jordan’s monthly transit pass and offers a $1,000 wellness stipend that covers a private gym membership.
8. Total all components for the final number
Once you’ve collected all the data points, add everything together to show the full employee compensation package.
Example: Morgan calculates that Jordan’s base pay, bonuses and incentives, retirement contributions, health insurance, PTO, equity, and perks add up to total compensation of $82,030.

Total compensation vs. base salary
Without context (or reminders), employees tend to underestimate the full value of what they receive. Reframing the conversion from ‘salary’ to ‘total compensation’ helps clarify what’s really on the table and why it matters.
- Base salary is one data point; total compensation is all-inclusive. Base pay tells employees what they earn in wages, but total compensation captures everything the employer invests in the relationship, from bonuses and PTO to retirement plans and tuition assistance.
- Total compensation includes employer-paid benefits. While base salary only reflects direct pay, total compensation accounts for the value of big-ticket, employer-funded items like health insurance, disability, and retirement plans. A standard salary figure can’t capture these nuances.
- Bonuses and incentives are excluded from base salary. In some positions, like sales, bonuses, commissions, and overtime, fall outside of base pay but represent a significant portion of the employee’s earning potential. Looking at salary in isolation leaves out a big piece of the total remuneration.
- Perks and intangible rewards are part of total compensation. From flexible hours to wellness stipends, non-monetary perks influence employee morale and satisfaction, making them a natural part of compensation conversations.
- Total compensation reflects long-term value. When you include equity, profit sharing, and other long-term, growth-oriented benefits, employees get a clearer picture of what they stand to gain over time by sticking with you.
Best practices for communicating total compensation to employees
Clear, consistent communication around total compensation helps employees see the full value of what they earn beyond just the number on each paycheck. It’s especially important during hiring, performance reviews, and retention conversations, where misunderstandings about compensation can impact satisfaction and trust.
Use a total compensation statement
A total compensation statement helps employees visualize the full breakdown of their earnings, line by line. It typically includes entries for base salary, bonuses, health insurance, retirement plans, and other benefits like tuition assistance, equity, and PTO. These statements give employees a tangible way to understand how much their employer contributes on their behalf and can be customized by job level or pay period to reflect evolving value.
Highlight employer-paid benefits during hiring
Candidates often narrow focus on base pay or hourly rate when evaluating job offers. But showcasing the full value of employer-paid items like healthcare premiums, disability coverage, profit-sharing, and other perks can shift the conversation. Asking your HR team to prepare talking points or one-pagers that summarize the full compensation package can help candidates make a holistic decision that takes into account more than salary alone.
Visualize value with charts or dashboards
Dashboards and simple visuals can be a powerful way to translate complex compensation data into something accessible.
For instance, a pie chart showing how much of a worker’s total earnings come from salary, benefits, and incentives can drive home the value of the role. These visuals can prove especially effective when paired with digital tools that allow employees to explore their package by category or calculate hypothetical changes.
Reinforce value during performance conversations
Your performance review cycle doesn’t have to be limited to conversations around raises and bonuses. You can use them as an opportunity to reinforce everything you, the employer, already provide. Linking achievements to overall employee compensation—not just potential increases—reminds team members of their full value to the company. This is also a smart time to discuss updates to benefits, new reimbursement programs, or planned contributions for the coming year.
Total compensation package examples
No two compensation packages are identical, but all serve to reflect the total value an employer provides beyond base salary. Packages vary based on role, industry, company size, and location. Understanding how these elements come together helps HR teams and executives evaluate offers and stay competitive.
The total compensation examples below demonstrate how you might present a complete breakdown to candidates or employees in a clear side-by-side view.
Example 1: Senior Sales Manager
In sales roles, a significant portion of compensation often comes from performance-based incentives, making transparency around earnings calculations critical.

Example 2: Mid-Level Software Engineer
Engineering roles typically offer a mix of stable base pay and long-term incentives like equity and retirement contributions.

How Rippling helps you manage total compensation
A comprehensive, single-system solution for HR, payroll, spend, and IT, Rippling offers support to businesses of all sizes worldwide. Rippling’s integrated HCM software removes barriers between key HR functions, including payroll, benefits management, headcount planning, and learning management, for a seamless experience. That same unified system makes it easier to calculate and communicate total compensation, giving your HR teams the tools to show employees the real worth of what you offer.
Rippling’s full-service payroll software is built on top of a single source of truth for employee data. That means your employee data isn’t tied to one specific app—it’s the same across payroll, time and attendance, onboarding, performance management, and any other apps you use within our unified platform.
What does that mean for you and your team? For starters, you have a single source of truth for up-to-the-minute employee information. It also means that your team doesn’t have to reenter information across systems when an employee gets promoted or moves to a different city to work remotely. From changing security permissions to updating PTO policies, Rippling triggers automatic updates to employee information in a single flow. This is especially beneficial for small businesses. It allows you to do more with less—less money, less headcount, and less time. And all with a 100% error-free guarantee.
Total compensation FAQs
What should I put for total compensation?
To show accurate total compensation, include all forms of pay, from base pay to bonuses, commissions, and overtime, to the value of benefits like health insurance, retirement plans, PTO, and tuition assistance. You can also include equity, perks, and any reimbursement or incentives. A clear breakdown helps your employees understand what they truly earn and supports transparent HR communication. For reference, try using a total compensation statement or worksheet.
How is total compensation different from salary?
Total compensation differs from a salary because it includes everything an employee receives from an employer. Salary, on the other hand, refers only to fixed base pay. Salary doesn’t reflect paid time, health insurance, retirement plans, or other elements like tuition assistance or perks. That means two jobs with the same annual salary might offer very different overall value depending on the compensation package.
Does total compensation include equity or bonuses?
Yes, total compensation includes both equity and bonuses, along with other forms of direct and indirect pay. This broader view helps employers show the full value of a role beyond just base salary. For example, stock options, annual bonuses, and profit-sharing all count toward a compensation package, even if they’re not part of the regular paycheck.
How is compensation calculated?
Compensation is calculated by adding base pay, either salary or hourly, to any additional earnings like bonuses, commissions, and overtime pay. Employers may also include the estimated value of health insurance, retirement plans, PTO, and other benefits to show the full picture. Understanding how compensation is calculated helps HR teams communicate value and align offers with industry standards.
This blog is based on information available to Rippling as of June 30, 2025.
Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.