Career Development

Compensation Packages: Definition and What They Include

February 22, 2021

Before you accept employment, it's important to consider not only the job, but also the compensation package your potential employer offers you. Reviewing the compensation package can help you determine whether you want to accept the position or look for other employment opportunities. In this article, we explain what a compensation package is, what it often includes and list the steps for properly assessing a compensation package before accepting employment.

Related: A Complete Guide to Competitive Pay

What are compensation packages?

Compensation packages refer to the combination of the salary and various benefits an employer offers you in exchange for employment. Compensation packages tend to vary by employer. Therefore, though they include a basic salary, the fringe benefits they include often depend on the company and the specific position. While some employers offer large compensation packages with more benefits, others offer minimal benefits and smaller compensation packages.

Related: Base Salary and Your Benefits Package

What's included in a compensation package?

What's included in a compensation package varies by employer and the particular position you're interviewing for. Before accepting a job, make sure you know everything that's included in the compensation package to help you make a more strategic decision regarding your future employment. Here are some common components you can find in a compensation package:


Your salary refers to the amount of money you make for doing your job. Employers may also include bonuses or commissions as part of your compensation plan depending on your position.

Paid holiday, vacation and sick days

These refer to days where you don't work but you still earn money for. For example, many employers pay you for Christmas Day or Thanksgiving even though you have these days off. In comparison, you can use vacation days at your leisure and use sick days when you're feeling ill. Having these days allows you to take time off without it affecting your paycheck.

Medical, dental and vision insurance

Depending on your employer and the type of position you have, your compensation package may include health insurance. You can use your insurance to cover part or all of your medical expenses. For example, health insurance typically covers any surgical or prescription drug costs. Typically, you get a better rate when you join your company's health insurance plan than if you purchased a policy independently.

Retirement savings plan

Many employers offer a retirement savings plan that allows you to contribute part of your pre-tax earnings to an investment account. This account continues to grow until you're ready to withdraw the money when you retire. Typically, employers offer a 401(k) retirement savings plan.

In addition to these common components, some employers include additional benefits in their compensation packages to attract talent and remain competitive in their industry. Some of the additional perks employers may offer include the following:

  • Telecommuting: Some employers may give you the option to work from home. This promotes a flexible work schedule and allows you to achieve a greater work-life balance.
  • Subsidized training or education: Some employers offer you tuition reimbursement or pay for training to help you grow your skills. This allows you to gain additional knowledge to use on the job, while allowing you to keep your current position.
  • On-site child care: Some employers have an on-site childcare facility where employees can drop off their children during work hours. This ensures your kids have supervision during the workday and avoids you having to pay for daycare, a babysitter or a nanny.

Related: 25 Types of Employee Benefits

Why do employee benefits matter?

When an employer offers you a compensation package, it's important to consider the specific benefits you can take advantage of. Here are some reasons why these benefits matter:

  • Planning for the future: A retirement savings account allows you to prepare for the future by helping you get ready for your eventual retirement. This helps you have a more secure future and provides greater peace of mind.

  • Offsetting costs of necessary services: When your compensation package includes health insurance, you have the opportunity to cover some—if not all—of the medical bills that you would have otherwise had to pay out of pocket or be unable to afford altogether.

  • Establishing greater work-life balance: When your employer offers you paid time off and a flexible work schedule, it's easier to balance your job with your personal life. Having this work-life balance helps you feel less stressed and can even give you greater job satisfaction. With a flexible work schedule, you can avoid traffic and structure your workday to better fit your other responsibilities.

How to assess a compensation package

When you're offered a compensation package, it's important to look at each of its components and the level of importance they hold for you. Properly evaluating a compensation package can help you determine whether you want to accept a position. Use these steps to review a compensation package:

1. Consider what's important to you

Take the time to consider your lifestyle, goals and what you value in life. What someone considers important varies from person to person. For example, someone may prefer a greater amount of vacation days, while another may prefer an on-site gym or on-site childcare facilities. How you value the components of your compensation package ultimately dictates your final decision.

Before you start your job search, consider what aspects of a compensation package you value the most. If a compensation package includes every component you're looking for, it may be worth accepting the position.

2. Know the details

Once you know what components you find the most important, gather the compensation package details from your potential employer. For example, since health insurance plans vary by company and provider, knowing exactly what your potential employer offers can help you come to a decision more easily.

Keep in mind that just because you're offered a fringe benefit you're looking for, it doesn't mean it'll meet your standards. If you're asking about health coverage, in particular, ask for a summary of each plan to better understand the details and the costs. You can even ask for the policy documents so you can read them yourself. Doing this ensures you know what to expect once you accept the position.

3. Determine the eligibility requirements

Even if you're offered many benefits and perks, you may not get to use them right away. Some employers reserve certain perks for employees who've reached a certain tenure. For example, you may not receive medical coverage until you've been with the company for at least 90 days. Also, managers may have to approve certain perks like tuition reimbursement before you can fully take advantage of the benefit.

4. Set a benchmark

To effectively evaluate a compensation package, it helps to have something to compare it to. Many job search websites and government and associate reports allow you to compare benefits data across different companies and fields. This data comes from surveys from different industries. Make sure to consider this data when evaluating a compensation package.

5. Consider asking additional questions

Before making your final decision, ask your potential employer additional questions to provide you with greater clarity. For example, ask them whether their health insurance plans have out-of-pocket costs, what career development programs you'll have access to and how often you can expect salary or performance reviews. Asking these questions can help you better understand the perks you'll receive should you accept their offer of employment.


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