Understanding Your Total Compensation: A Comprehensive Guide

Estimate variable compensation as target bonus percentages times salary.

It's common today for a compensation package to consist of more than a base salary, especially for senior roles in an organization. To calculate your compensation package, consider all forms of compensation, including base salary, overtime, variable compensation such as short-term bonus or incentive, long-term incentives as well as perquisites and benefits. Your calculation will be an estimate of your compensation package and your actual compensation will depend on the level of your individual success and the company's overall success.

Step 1

Gather all documentation related to your compensation package, including detailed descriptions of how any bonus, incentive and stock option plans work. Ask the human resources department for the plan, design or plan description documents if you cannot locate them.

Step 2

Calculate the base salary portion of your compensation package. Convert an hourly amount to annual by multiplying by 2,080 if you work a 40-hour week or by 1,950 if you work a 37.5-hour week.

Step 3

Estimate the amount of overtime compensation you will receive in a given year. Estimate the number of overtime hours you work in a typical month, multiply that by your overtime rate, which is one and a half times your hourly rate and multiply that by 12. For example, if your hourly rate is $12 and your work 10 hours of overtime in a typical month, your annual overtime compensation is estimated to be $18 times 10 times 12 = $2,160.

Step 4

Calculate your target variable compensation, bonus or incentive amount if you are eligible for such an award. For example, if your target bonus percentage is 25 percent and your annual salary is $50,000, your target bonus would be $50,000 times 0.25 = $12,500. Use last year's actual bonus or incentive amount, if the plan is completely discretionary or calculated from a pool of money determined at the end of the year based on company success.

Step 5

Estimate the value of commissions you might receive during the year, for example, estimate commissions on product sales. Estimate the volume of sales you will deliver and multiply it by the commission percentage based on that volume. For example, if you estimate $1,000,000 in sales and the commission percentage for $500,000 to $1,500,000 is three percent, your sales commission would be $1,000,000 times 0.03 = $30,000.

Step 6

Determine your long-term incentive award, such as the value of stock options, if you are eligible for such an award. Ask the human resources department to help you estimate the value of the award, based upon the mechanics of the long-term incentive plan design because the calculation is extremely complex.

Step 7

Calculate the value of cash benefits provided to you, for example, the company's match in a 401k savings plan. Estimate your contribution to the plan and the amount of the company match up to the limit set by the plan. For example, if your salary is $50,000, you will contribute 10 percent of salary to the plan and the company will match your contribution up to a maximum of six percent, the value of the company contribution would be $50,000 times 0.06 = $3,000.

Step 8

Estimate the value of any perquisites, for example an allowance for a company car. Multiply the monthly value of the perquisite times 12 to determine an annual compensation amount. For example, if the monthly car allowance is $300, the annual car allowance would be $300 times 12 = $3,600.

Step 9

Add each element of compensation plan together to determine your total annual compensation package. Remember that this is only an estimate of your compensation, and that your actual compensation will be determined based on your individual and the company's overall performance, as specified in the company's short- and long-term incentive program documents.