What is total compensation?

An employee‘s total compensation is everything they receive, both monetary and non-monetary, for the work they do, including their base salary, commissions, bonuses, paid time off, health insurance and other employee perks. However, many candidates place the most emphasis on pay rates and likely know the minimum salaries they expect.

Why it’s important to discuss total compensation expectations

Why do you need to discuss total compensation details with a prospective employee? Here are some reasons:

• Aligning expectations: This conversation can ensure both parties agree on a salary, benefits and other perks.

• Attracting top talent: A clear understanding of compensation helps you present a competitive offer.

• Preventing misunderstandings: By establishing expectations in advance, you may avoid surprises or dissatisfaction later in the hiring process or after the job offer.

• Ensuring transparency and trust: When you discuss compensation, instead of just telling the candidate what you can offer, you involve them in the process and create a foundation of open communication and trust.

When to bring up compensation expectations

Discussing total compensation expectations early in the candidate selection process can help you determine if an applicant expects more than you can offer. If you learn their expectations exceed your budget, you can redirect focus to other candidates.

Potential hires might also have different expectations after hearing more about the job’s duties and responsibilities.

Preparing for compensation discussions

Before you discuss compensation with candidates, it’s important for you to have a clear idea of what you can offer and what is standard for similar roles.

This can give you an idea of what candidates might expect and whether your numbers are reasonable. You can also share more details with interviewees that help explain your reasoning for the compensation package you offer.

Evaluate the total compensation you offer

Review your company’s budget to identify the salary range you can negotiate with candidates.

Be prepared to discuss the total compensation package, including non-monetary benefits like work-life balance , career development and company culture.

Determine your flexibility

Consider leaving room to negotiate and offer options that could meet the candidate’s needs, such as signing bonuses, performance incentives or additional time off.

How to talk about compensation with candidates

Interview questions related to compensation help initiate the conversation. You can ask about compensation expectations in different ways. A few versions of the compensation question include:

• What are your compensation expectations?

• What salary range are you looking for with this position after hearing about the responsibilities?

• After hearing about the total compensation package for this job, how do you feel about it?

• What questions do you have about the salary and benefits for this position?

• Are there additional benefits you would expect to see for this position?

What to look for in candidate answers

When evaluating answers to the question “What are your total compensation expectations?”, look for clarity, honesty and realistic expectations. The candidate should provide a clear and reasonable range based on their experience and market standards.

Consider whether their expectations align with the role’s budget and industry norms. Pay attention to how well they articulate their rationale based on experience, skill set or location. A thoughtful, well-reasoned answer demonstrates the candidate has researched the market and is serious about finding a fair and mutual fit.

Related: 10 Salary Negotiation Strategies for Employers

Frequently asked questions about compensation requirements

Do you have to negotiate with a candidate if their expectations differ from your compensation plan?

While you don’t have to negotiate with a candidate who has higher compensation expectations, doing so could help you get the candidate you want to hire. Being willing to negotiate shows you’re flexible and concerned about your employees’ needs. Responding to a counteroffer helps you find a mutually beneficial compensation package that fits your budget and gives the candidate the compensation they need.

Should you increase your compensation package for a strong candidate?

Whether or not you offer more to a strong candidate depends on the situation and your compensation practices. If your compensation is below industry standards, increasing them across the board could help. Offering a competitive salary and benefits package helps you attract more candidates when you hire.