Searching for and accepting a new job is exciting, as this means starting a new chapter in your life and your career. While the base salary is an important factor, it’s wise to consider the overall compensation package being offered before accepting a new position. Some aspects of compensation are straightforward, but other elements such as stock grants and benefits are more complicated. We explore different employment package considerations to help you make the best financial choices in your career pursuits.
Base Compensation
Your base compensation is one of the easiest elements of a job offer to understand. It is the minimum pay that you will receive.
Ideally your base salary is competitive and offers a satisfactory level of financial security. However, if the base amount is low and needs to be supplemented by bonuses, commissions or other, it is important to consider:
- How likely you will be able to secure other non-guaranteed compensation elements based upon criteria that you and/or the company must achieve.
- How a lower base pay structure impacts your benefits such as life and disability insurance coverage that is often tied solely to base pay.
Bonus and Commissions
Bonus and commission payments are common types of additional compensation. Both are cash-based and paid outright to you, versus tied to stock performance (discussed below).
- Signing Bonus: A signing bonus is an incentive payment to accept a job offer. It can be paid upon signing or as part of your first pay period once commencing employment.
- Performance Bonus: Many employers offer performance bonuses to incentivize work achievements. Bonuses are typically either dependent upon your personal performance and/or the organization’s performance. It is important to review the bonus criteria and evaluate how realistic they are.
- Commissions: A commission-based compensation structure is common if you sell products or services. Commission payments can vary significantly by pay period, and sometimes only pay intermittently. Such variation should be carefully considered to ensure you can cover expenses when commissions are low or non-existent in a pay period.
Stock Incentives
Unlike traditional bonus or commission payments, stock incentives award shares of company stock that have vesting periods. A vesting period means that a period of time must lapse before you can take ownership of your stock. This delay creates risk as the share price could go up or down before shares vest and become yours. Common types of stock awards include:
- Options: Options provide financial benefit if you exercise the shares when the stock price is above the price when they were granted to you (the grant price). For example, if options were awarded when the stock price is $100 and you exercise the option $120, you receive the benefit of $20 per share. Conversely, if the price falls below $100, your options become worthless.
- Restricted Stock Unit (RSU): RSU grants offer greater guarantee as the full value of the stock grant becomes available to you upon vesting. Ideally the price increases, but you still receive economic benefit if it declines.
Retirement Plans
Retirement plans such as 401(k), 403(b) and TSP accounts are an important employer feature. They allow you to save far more than traditional IRA accounts. Additionally, many companies offer a retirement plan match. For example, the company might match your first 4% of contributions, meaning that if you contribute 4% the company will also contribute 4% to your account. Remember that you can always contribute up to the maximum annual contribution level, regardless of matching amount.
Benefits
Benefits offered by the company offer value and should be fully reviewed before accepting a new position. They should also be compared to your current employment benefits, particularly to identify any benefit reductions or voids. Here are common benefits offered to employees:
- Health Insurance: The cost of health insurance can be exorbitant. The amount of health insurance coverage an employer offers can dramatically impact the true value of a job offer. Ask if the employer offers a group health insurance plan (including health, dental and vision) and if you will have to pay for any portion of your coverage. If you need coverage for your family, make sure to ask about family coverage benefits and costs to you.
- Disability: Disability insurance is an important coverage to replace a portion of your earnings if you cannot work. Not all employers offer this benefit, and it is unfortunately very expensive to purchase individually. If coverage is provided, ideally the definition of disability is “own occupation,” meaning that you are not able to perform the job functions for which you are trained, versus the inability to perform in any job.
- Life Insurance: Life insurance benefits pay an amount to your beneficiaries upon your death. Many, but not all, employers offer life insurance up to one times your salary, up to a maximum limit. You might also be able to obtain additional insurance through the employer’s group plan.
- Flex Savings Account: A flex savings account (FSA) offers the ability to fund and pay for expenses such as medical and childcare costs with pre-tax dollars. This helps to reduce the true cost of such expenses.
- Paid Leave: The amount of flexibility you gain with paid leave can impact your finances and quality of life. Common types of paid leave include holidays, vacation days and sick days. These often total a month or more, making them a meaningful benefit.
Travel, Hours, and Flexibility
Clarify upfront the work commitments of a new job including travel obligations, standard or expected days and hours, and any flexibility offered. For example, can you telework a portion of the time? The demands of a job and the flexibility offered can render a significant impact on you and your family.
Relocation Costs
If a new job involves relocating, find out what relocation benefits will be offered, or negotiate for such benefits. These might include covering the costs of moving, temporary housing, paying for the transaction costs of buying or selling a home, guaranteeing a minimum value for the sale of your home, or other perks. You should also consider the cost-of-living in the area you might be relocating to relative to your overall compensation package. For example, the value of a compensation package will vary drastically in the mid-West versus New York or San Francisco.
Future Career Potential
While you should always evaluate the overall financial value of a new job, it is also important to consider where a new job will take you next (either within the same organization or long-term in your field of work). Higher compensation packages frequently align with career growth, but not always. For example, sometimes taking a lower paying job that offers greater learning opportunity can best position you long-term relative to your career and compensation objectives.
Before You Accept
Before you accept a new position, always remember to:
- Determine how the compensation and benefits of your current job will be impacted. For example, might you forfeit a bonus payment or the vesting of retirement plan benefits or stock incentives?
- Consider an appropriate termination notice that should be given to your current employer to facilitate transition of work responsibilities. Two weeks is standard, but longer transition periods are often appropriate for high level positions. Leaving a job on good terms is important as you might need an employer reference in the future.
- Ask yourself how leaving your current employer now might look on your resume. Frequent job hopping can negatively impact future employment opportunities.
- Carefully consider the stability of a potential new employer. Is the organization established and performing well, or is it facing instability due to challenges or being a startup?
- Receive an offer letter in writing that clearly outlines your compensation and job responsibilities. Your acceptance should also be in writing to solidify all aspects of your new position.
- Select a start date of employment that allows you to properly transition from your current job to your new position.
- Don’t forget about the retirement account at your current (or former) employer. Retirement plans can be rolled into new employer retirement accounts or into IRA rollover accounts.
Your career path and compensation throughout has a large impact on your long-term financial security and life enjoyment. SageVest Wealth Management frequently counsels clients and their children on employment decisions, looking at the totality of compensation and benefits offered, to ensure that they are well-informed in making employment decisions. Contact us if you are seeking help in determining if accepting a job is best for you.
