Issue:March 2014

BUSINESS DEVELOPMENT – The Compensation Paradox

My strong belief is that most people do not understand their entire compensation package. Nor do they think about the impact their compensation package has on themselves and the company, as an example, when receiving a promotion and a raise.

When most people think about their compensation package, they think only about their gross salary and take-home pay. What they never think about is their Cost to Company (CTC).

The CTC is the total cost the company spends on you beyond your salary. This includes, among other things, the building you are in, your desk, chair, and file cabinet; computer, monitor, mouse, keyboard, desk phone, cell phone, and iPad, contribution to medical benefits, social security, Medicare/Medicaid, pension plans, unemployment tax, payroll taxes, paid time off, and more.

Companies look at you and your total CTC when considering your value to the company. Not just your salary. This is where the paradox comes in. The employee looks primarily at his or her gross pay, take-home pay, and benefits to determine if working at their company is worthwhile. This is much more limited than how the company determines its valuation and total CTC of the employee. And the more benefits and perks the company provides, the greater the gap between the employee’s valuation of the company and the company’s valuation of the employee.

This situation really comes into play when a person is being given a promotion and a raise. A person will normally look at a promotion and a raise as a reward for a job well done. They take the position that they have contributed mightily to the company, achieved positive results, and met or exceeded the goals that were established for them.

But the employee may also believe the pay raise was not enough when compared to the value they bring to the company and that, even with the raise, they are not being paid fairly for the value they bring to the company. They begin to look at or estimate the pay of others in the company, at people outside the company, and websites that show what their position pays on average, and commiserate with family and friends relative to their compensation package.

The company, on the other hand, believes their compensation package for this position is competitive and at the higher end of thepay range for this position. They consider the CTC relative to the value the employee brings to the company. Beyond the cash compensation, the company may also be providing the employee with an excellent medical plan, pension, 4 weeks paid vacation, a cell phone, an iPad, an auto allowance, liberal travel and expense policy, and more.

So the point of this is that a person has to consider the whole package that he or she receives from their company, not just what is in the pay envelope. You must consider the complete CTC in valuing your compensation package relative to the value that you bring to your company.

If after you have considered the CTC you still believe you are under-paid and under-valued by the company, then it is time to meet with your boss and make your case. You may not win this discussion, but at least your boss will know your concerns and understand your position.

John A. Bermingham is currently the COO of 1st Light Energy & Conservation Lighting. He was previously Co-President and COO of AgraTech, a biotech enterprise focused on chitosan, a biomaterial processed from crustacean shells (shrimp, crawfish, crab, etc), as well as President & CEO of Cord Crafts, LLC, a leading manufacturer and marketer of permanent botanicals. Prior to Cord Crafts, he was President & CEO of Alco Consumer Products, Inc., an importer of house ware, home goods, pet, and safety products under the Alco brand name and through licenses from the ASPCA and Red Cross. He successfully turned around the company in 60 days and sold Alco to a strategic buyer. Mr. Bermingham was previously the President & CEO of Lang Holdings, Inc. (an innovative leader in the social sentiment and home décor industries) and President, Chairman, and CEO of Ampad (a leading manufacturer and distributor of office products). With more than 20 years of turnaround experience, he also held the positions of Chairman, President, and CEO of Centis, Inc., Smith Corona Corporation, and Rolodex Corporation. He turned around several business units of AT&T Consumer Products Group and served as the EVP of the Electronics Group and President of the Magnetic Products Group, Sony Corporation of America. Mr. Bermingham served 3 years in the U.S. Army Signal Corps with responsibility for Top Secret Cryptographic Codes and Top Secret Nuclear Release Codes, earned his BA in Business Administration from Saint Leo University, and completed the Harvard University Graduate School of Business Advanced Management Program.