Total compensation (or total comp) represents the quantified sum of what you get in exchange for working for a company. It includes more components than just your salary, and everyone recommends that you calculate this prior to changing jobs.
But there is no definitive guide to doing this, and a lot of the advice on the internet covers only the easily quantifiable portions of what you get in a compensation package. They omit things like are you learning and do you feel valued and do you get time and space to live your life, which are hard to quantify but nevertheless critical to making a decision about changing jobs.
So I have attempted here to create a guide that includes those things. This guide is by no means definitive, but when you complete it, I hope it will help you think through important questions to develop a realistic picture of what you get out of changing jobs. I should mention that I live in the U.S., so some of these estimates will be specific to U.S. policies.
Salary: this is the easiest number to compare. If one company offers you $X and another offers you $X + 2, it’s clear who gives you the higher salary. One thing I like to do is back-calculate how much per month I earn at one place versus another. I do this for two reasons: First, I pay most of my expenses on a monthly rather than a yearly scale. I’m interested to know how much I’ll have left over after my bills to donate, save, or invest. Second, this helps me gain some perspective when I am comparing offers with fairly small salary differences. Suppose I am gonna get $X0,000 one place and $X2,000 another place. $2,000 sounds like a big number. Per month, though, it’s a $167 difference (before taxes). $167 is a nice amount of money if I’m struggling to make ends meet. But if my income would outstrip my expenses either way, $167 it’s too small to justify choosing the $X2,000 offer if the $X0,000 offer has lots of other things that are really important to me.
401(k): Does your company have a matching policy? Add the maximum match to the total comp. If there is a 401(k) policy but no match, you still get to put away pre-tax dollars for retirement (up to $18,000, or $24,000 if you’re 55 or older in the U.S.). If there is no 401(k) match at your job, you can save with an IRA…but you can only contribute $5,500 into one of those per year, or a little more if you’re 55 or older. You may also be able to contribute to an individual 401(k) if you possess a business with no employees outside of your job.
Time off: How many days do you work per year, minus sick time and paid time off, at the new gig versus your current one? Divide your salary by 2080 and add the quotient, multiplied by number of off days, to your total comp. This can be tougher with tech companies because they sometimes like to do an ‘unlimited’ vacation policy. By switching vacation requests to a less formal process, companies get more work days out of people who feel uncomfortable asking for vacation days that are not formally granted to them. Also, the company doesn’t have to pay you out for vacation when you leave your job. If you’re considering an ‘unlimited’ vacation policy for either your current or potential future total comp, you can use the average number of vacation days taken by employees on unlimited plans—around 14 (for reference, fixed-days vacation policies tend to allot more like 15 or 20).
Health Insurance: What is covered? Find out your annual deductible and subtract that from your total comp. Also find out how much comes out of your paychecks in a year from the health insurance, and subtract that from total comp. Health insurance can be a really big one. A so-so policy might cost you $3,000 more per year than a really nice one, even under circumstances of no major procedures. If you foresee a big procedure in the next year or two, pay extra attention to this component of total comp.
Stock Options/Equity: OK, we’re about to do the quick and dirty about stock options. If you want a more comprehensive explanation of stock options, I explained them in terms of donuts right here.
I do not include stock options or equity in total comp unless the company is public. Even companies that say they’re going public soon are much farther away from going public than your hiring manager thinks they are. And even if the company does undergo some kind of liquidity event, that event needs to be for a fairly substantial value for your options to be worth more than you’ll pay for them. About 35% of companies that undergo a liquidity event do so at a value that represents a net gain for folks who bought their options. So that’s what you’re looking at…if you get the opportunity to buy your options at all.
Stock options are usually a conditional benefit. Your options will usually have a cliff and a vesting period—with the startup standard being a 1 year cliff and 4 years to vest, respectively. Let’s use those numbers as examples. With a 1 year cliff, you need to stay with the company for a year to get any of your options. At that point, you’ll receive 25% of them, and the remaining 75% will be split up and vested to you evenly over the remaining months or pay periods between 1 year and 4 years. When you have been with the company for 4 years, you will have all of your options. 4 years is a non-trivial amount of time. If you leave after 2 years, you only get to exercise half of the options on your hiring contract.
If you get shares from a private company and then it does undergo some kind of liquidity event, good for you—you get a nice unanticipated bonus. I’d rather that than you end up not getting something that you factored into your total comp—which is the far, far more likely outcome with companies and liquidity events.
If the company is public, multiply your shares by the current price per share and subtract what you would pay for the totality of the shares. Add that to your total comp—keeping in mind any restrictions associated with acquiring or selling these shares.
Perks like on-site food, laundry, and company outings: These are probably not worth as much as you’re imagining. This is because your habits don’t change as much as you think they will, even if your surroundings change a lot. Try this exercise: estimate how much you spend on these items in a year now, and estimate how much you would spend on them at the new job. Would you stop buying coffee every morning, or going out to eat? Is $2.50 per laundry load a few times a month worth factoring in? Do the company outings prevent you from paying for events that you otherwise would have paid for and attended? I find that, for me, the margin of error on a total comp calculation is already larger than the savings I’m getting from most of these novelty perks. So I usually don’t include this. If you hate the idea of not including it, place a threshold on which ones will be included. Maybe you decide to estimate the value of each of these perks and throw out the total for each one if it falls under $1,000. That way, you leave ‘laundry’ out of your total comp estimate, but you get to include valuable points or airline miles earned on your credit card for reimbursable travel expenses or something.
There’s one perk that I do always include in my calculation: any perk that increases your physical activity. Think gym memberships, on-site fitness facilities, or walkable/bikeable commutes. This is because, after commute time (which we’ll get to in a second), lack of physical leisure time tops the list of things that add stress to a person’s daily life. The more convenient your workout, the more likely you’ll do it. And working out benefits, first of all, your mental health to a measurable degree, and second of all your physical health so you’ll feel better and live longer. Estimate how many times a year you work out now (be honest). Estimate how many times a year you’ll work out with your new benefits (if it’s drastically different from the first number, cut the difference in half for a more realistic estimate of how much your habits could change. So if the current number is 50 and the new number is 100, let’s actually say 75). For every additional workout, add $50 to the total comp of the new opportunity. So in this case, 25 * 50 = 1250. Obviously, this is a very loose estimate, but we’re trying to quantify quality of life here which is dubious to begin with, so keep that in mind.
That is, in fact, the topic of the next section of our total comp estimation…
Not Easily Quantifiable:
Commute: This makes a way bigger difference than you realize. Commute time is the highest predictor of day-to-day stress for people in the work force. Consider how much time your new commute would take over the course of a year from your current annual commute time, and come up with a number for how much per hour that time is worth to you. Add that to the new total comp. How much that time is worth to you will vary based on what you do with that time. If you’re reading a book on a train versus reading a book in your house, maybe it’s not that different. But if you’re driving in Atlanta traffic by yourself versus playing a game with your children, the difference here might be bigger per hour.
Also, remember that if you switch from a driving commute to a biking one or a walking one, you get to add commute benefits in the physical activity column (discussed above).
Coworkers: This one is hard because you don’t know all your coworkers at a new job. But you do know some of the most important ones—your future bosses. Once again, this one is a bit ambiguous, but try to quantify how much time passes in your work day, on average, before you are frustrated, unhappy, or afraid because of your managers and bosses. Make a speculative estimate of whether you’ll deal with more of this or less of this at a new gig. Add a few percentage points to total comp if you’ll be dealing with significantly less of this.
Job Responsibilities (Specifically Skill Development): Will you be doing a different set of tasks at the new job versus the old one? Make a list of the five skills you would love the most to have two years from now. We’re going to say that this basket of skills is worth some amount depending on how different it is from your current set of skills, how valuable that skillset is in the market, and how much you want that skillset. If you had your entire current income to spend on whatever you wanted, how much would you be willing to spend to learn this basket of skills? If it’s your dream to learn these things, maybe you would spend all of it. If you’d really like to learn the skills but you also would use the discretionary windfall to take vacations, maybe you’d spend half of it. If you don’t care much about these skills, maybe you’d spend five to ten percent.
How many of these new skills will you get the chance to learn with your current gig? How about at the new gig? Beware of crediting companies on ‘gonna.’ If your current company has not moved you at all toward learning X in the past, don’t count on them to move you there in the future. As for a new gig, I recommend getting their planned general work areas for you in writing. So if you’re going somewhere for the chance to work with their Android team, get it in writing that you’ll spend however much of your time working with the Android team. Then, if you wouldn’t have learned mobile otherwise, tack on 20% of your ‘skill basket’ value to the new total comp.
Now that you’ve performed some exercises, you probably have a little range that represents your current total comp and your potential future total comp. You also face a certain degree of uncertainty about future total comp because you don’t yet have all the details of the new gig.
What if that uncertainty leaves the potential for some downside for you?
Consider your life stage: If you are young, relatively healthy, able-bodied, with no dependents, or with parents who could support you in a pinch, then you can afford to take much bigger career risks than feel comfortable for you. That is, if you know that you would always wonder ‘what if’ about an opportunity, then you’re in a better position to take it in spite of quite a lot of uncertainty.
If you have more dependents or less of a safety net, then you may not have this luxury. I know this isn’t fair. But it also doesn’t mean you can’t do interesting things. If you are in this position, chances are that you are also more experienced at your job, or you have more transferrable skills from more work and life experience. Your skills and experience are valuable assets that your dream company might consider bringing on in a part-time, off-hours, or contract capacity so you can test the waters. That allows you to bring down the level of uncertainty in your total comp estimate before making a huge leap.
Which brings me to my last thing:
If you are seriously considering changing from the job you have to a different job, then something about the potential new job must have impressed you. Even if you decide not to take it, remember that ‘no, thanks’ is different from ‘not right now.’ On multiple occasions I have ended up working with people to whom I said ‘not right now, thanks’ the first and second time I spoke with them.
Keep in touch with the people you met while interviewing for that new job in case something materializes. Maybe the two of you can come up with an alternative arrangement to work together, or maybe you’ll work together at some point down the road. That way, even if your job search doesn’t end in a new job, it does bring you a few new connections and a better understanding of what the market values about you.