How to Weigh Job Benefits
Summary
TLDRThis video compares modern job benefits to choosing ice cream toppings, where salary becomes just one of many factors. It explains how companies use fringe benefits, like insurance and retirement plans, to meet employees' basic needs for security. The hosts demonstrate how to calculate total compensation by comparing two job offers, showing the importance of evaluating all perks alongside base salary. They also highlight intangible benefits like work-life balance and management quality, emphasizing that while salary matters, it's crucial to consider the entire package when job hunting.
Takeaways
- 🍦 The complexity of job offers today can be compared to choosing ice cream with numerous toppings—compensation includes many components beyond just salary.
- 💼 Employers now offer an array of perks like insurance, retirement plans, and stock options, making it harder to evaluate total compensation.
- 📊 Employee benefit plans are driven by basic human psychology, aiming to satisfy needs such as safety and security, as outlined in Maslow's Hierarchy of Needs.
- 👨🌾 Job security used to be tied to family and agriculture, but the industrial revolution brought consistent income through industries like manufacturing and transportation.
- 💸 The first retirement plans, like American Express's in the 1800s, offered payments after employees worked for 10-20 years, serving as early benefit packages.
- 🏛️ Tax exemptions introduced in the 1920s incentivized employers to contribute to retirement plans, fueling the growth of employee benefits.
- 🧮 To evaluate a job offer's total compensation, calculate the hourly worth of both salary and benefits, factoring in perks like health insurance, vacation days, and gym memberships.
- ⏳ Time commitment matters—a job with higher pay might demand longer hours, reducing the effective hourly rate of pay, especially in startups with longer workweeks.
- 🏠 Non-financial perks, such as flexible working hours or remote work options, can significantly impact job satisfaction and should be considered in decision-making.
- 👨💼 A key factor in job satisfaction is the relationship with one's direct manager, as poor management is a common reason employees leave their jobs.
Q & A
What does the script compare job hunting in the modern era to?
-The script compares job hunting in the modern era to shopping for ice cream, where the salary is like the ice cream itself, and the various benefits and perks are like the toppings that sometimes overshadow the main offering.
Why do employers offer so many benefits and perks?
-Employers offer benefits and perks to appeal to basic human psychology and address needs like safety and security. According to Maslow's Hierarchy of Needs, people prioritize essentials such as food, shelter, and financial security, and benefits help meet these needs.
How has job security evolved from pre-industrial to post-industrial times?
-Before the industrial revolution, job security was tied to being born into a certain family and working on family farms. After industrialization, industries like manufacturing and mass transportation introduced consistent incomes, providing a new sense of financial security.
What was the first private sector retirement plan in the US?
-The first private sector defined benefit retirement plan in the US was offered by the American Express Railroad Company in the late 1800s.
Why did retirement benefits become more common after the 16th Amendment?
-Retirement benefits became more common after the 16th Amendment, which established federal income tax. Employers were allowed to deduct contributions to pension plans as tax exemptions, incentivizing companies to offer retirement benefits.
How can employees calculate their total compensation when comparing job offers?
-Employees can calculate their total compensation by considering not just salary but also the value of benefits like health insurance, gym memberships, bonuses, and retirement contributions, converting them into an hourly pay rate to compare offers effectively.
How does the number of hours worked impact the comparison between job offers?
-If one job requires working more hours, such as 50 hours a week instead of 40, the hourly rate of compensation can drop significantly, which could make a seemingly higher-paying job less attractive than one with fewer working hours.
What non-monetary factors should be considered when choosing between jobs?
-Non-monetary factors include workplace culture, flexibility of work hours, the option to work from home, growth opportunities, and the quality of direct managers, as these can significantly impact job satisfaction.
Why is it important to consider your direct manager when accepting a job offer?
-It's important to consider your direct manager because studies show that 57% of employees quit their jobs due to their manager. A bad manager can negatively affect job satisfaction, regardless of salary or benefits.
What advice does the script give about evaluating job offers?
-The script advises thoroughly running the numbers to calculate the total compensation, considering both monetary and non-monetary benefits, and being mindful that salary isn't everything. It's important to look at the whole picture, including work-life balance and management style.
Outlines
🍦 Ice Cream Parlor and Job Hunting Parallels
The speaker reminisces about childhood trips to the ice cream parlor, where choosing a flavor was the only decision to make. Today, however, it's the toppings that steal the spotlight, and this complexity mirrors modern job hunting. Beyond salary, job offers now include various benefits and perks like insurance, stock options, and more, making it more difficult to compare offers directly.
🔎 Comparing Benefits: Not Impossible
Although job benefits add complexity to decision-making, it’s still possible to navigate through the options. The speaker sets up the premise of the video: exploring a range of employer benefits and how to pick the combination that suits individual needs. They aim to help viewers better understand the array of options available and the importance of weighing these in job offers.
🧠 Psychology of Employee Benefits
The speaker introduces the concept of employee benefits by referencing Maslow's Hierarchy of Needs. Employers offer these perks to satisfy basic psychological and security needs. Historically, humans prioritized food, shelter, and safety, and in today's world, a stable income and job security have become key to achieving these same necessities.
🛠 Evolution of Job Security from Agriculture to Industry
The speaker contrasts the job security of the past, where people’s careers were tied to their family’s agricultural work, with modern job structures that arose during the Industrial Revolution. Industrialization offered more consistent income streams, unlike the uncertainties that came with farming, leading to a new concept of job security based on wage labor.
🏦 The Birth of Retirement Plans
The speaker discusses the advent of the first private-sector defined benefit plan, offered by American Express Railroad in the late 1800s. These plans provided employees with continued pay after retirement, typically as a percentage of their salary. However, employees had to work for many years and be over 60 to qualify, aligning with the shorter life expectancies of the time.
💡 Tax Incentives and the Expansion of Retirement Benefits
In the 1920s, following the ratification of the 16th Amendment and the federal income tax, employers began deducting contributions to employee pension plans. This tax exemption encouraged the widespread adoption of retirement benefits, which became a common practice in the corporate world.
📊 The Complication of Modern Perks
What began as a way to meet basic security needs through retirement plans has evolved into an overwhelming array of employee perks. Modern companies offer benefits such as gym memberships, stock options, and even quirky perks like free tacos, making it increasingly challenging for employees to focus on the salary and weigh job offers effectively.
📉 Breaking Down the Numbers: Offer 1
Taylor, the hypothetical job-seeker, is comparing two offers. The first offer comes from 'We Like Bikes,' a well-established company offering a $60,000 base salary, partial health insurance coverage, a gym membership, and a possible 5% bonus. By calculating the hourly worth of these perks, including vacation days and a 401k match, Taylor’s total compensation reaches $36.79 an hour in the second year.
💼 Breaking Down the Numbers: Offer 2
Taylor's second offer is from a tech startup, Educatopia, offering a $72,000 salary, free lunches, and stock units. At first glance, this offer seems more lucrative, reaching $40.58 per hour in the second year. However, the company culture encourages longer working hours, effectively reducing the hourly compensation, bringing it down to $32.47 in year two, making the first offer more attractive.
⏳ Hidden Costs of Overwork and Stock Options
While the stock units offered by Educatopia may seem promising, they're a gamble, and the extra work hours required can significantly reduce Taylor’s hourly wage. The speaker emphasizes that the risk and intensity of a job should factor into decision-making just as much as salary and perks.
🏠 Intangible Benefits and Work-Life Balance
The speaker highlights that not all job benefits come with a dollar value. Perks like flexible hours or remote work offer personal value that can’t be quantified. Additionally, choosing the right manager and understanding company culture are critical, as a poor relationship with a boss is one of the most common reasons employees quit.
💡 Conclusion: Salary Isn’t Everything
In conclusion, the speaker reminds viewers that while salary is important, it's not the only factor. Time is a person’s most valuable resource, and job decisions should account for all aspects of compensation, benefits, and personal values. Running the numbers beforehand ensures long-term satisfaction with a job.
🎥 Future of Work: A Docu-Series
The speaker closes the video by promoting 'Future of Work,' a six-part docu-series on PBS Voices. Hosted by Julia and the speaker, it explores major work-related topics such as debt, the gig economy, and career identity. The show promises to answer big questions Americans face in today’s evolving job landscape.
Mindmap
Keywords
💡Employee Benefits
💡Total Compensation
💡Maslow's Hierarchy of Needs
💡401k Match
💡Stock Options
💡Base Salary
💡Work-Life Balance
💡Health Insurance Premiums
💡Retirement Plan
💡Company Culture
Highlights
Ice cream parlor comparison: Choosing job benefits today is like picking ice cream toppings, where the salary can get lost among the many other offerings.
Employers use a range of benefits, from insurance and retirement plans to stock options and onsite childcare, to attract employees.
Maslow’s Hierarchy of Needs is referenced, linking job benefits to basic human psychological needs like safety and security.
The industrial revolution shifted the labor force from agriculture to consistent income jobs, creating new concepts of job security.
The first defined benefit plans, or retirement plans, were introduced in the late 1800s, offering continued payments after retirement for long-term employees.
A key turning point came in the 1920s when tax exemptions incentivized employers to contribute to employees’ pension plans.
Modern employers continue to pile on benefits, making it increasingly hard to compare offers, as they go beyond just salary.
Example of Taylor comparing two job offers: a $60,000 salary with additional benefits versus a $72,000 salary with fewer benefits.
The total compensation calculation shows that extra benefits like health insurance, gym memberships, and bonuses significantly impact overall earnings.
Taylor discovers that working longer hours at a startup reduces the effective hourly rate, changing the perception of the higher salary.
Stock units are a gamble in job compensation, and working extra hours can dramatically affect how appealing a job offer is.
Some job benefits, like flexible hours or the ability to work from home, can't be calculated financially but are highly valued by individuals.
A 2019 study shows that 57% of employees leave their jobs due to their direct manager, emphasizing the importance of management in job satisfaction.
The message encourages careful evaluation of total compensation, including non-monetary benefits, and considering the overall work environment.
The episode promotes a balanced approach to evaluating job offers, considering both the financial and personal factors that impact job satisfaction.
Transcripts
- When I was a kid and my parents took me
to the ice cream parlor,
I had one simple choice to make.
Which flavor did I want.
I myself have always been a mint chocolate chip connoisseur,
but nowadays, when we walk into a shop,
the real star of the show seems to be the toppings.
Fruity pebbles, boba, crushed potato chips.
The ice cream seems a bit of an afterthought.
- Honestly, shopping for a job in the modern era
can feel eerily similar.
The salary can get lost in the fray
when you compare it to the flurry of options and add-ons
that can come with a new position,
insurance, retirement, onsite childcare,
stock options, vacation days, tuition reimbursement,
bring your dog to work day.
Phew.
- Obviously, it's really nice for people
who have these kinds of things to choose from,
but it can make it harder than just comparing
one ice cream flavor to another.
But thankfully it's not impossible.
And today we will explore the buffet
of employer benefit options
and figure out how to pick the flavor combo
that's right for you.
(playful music)
- Have you ever wondered why employers
do this kind of stuff?
Why bother with all these ad-ons,
fringe benefits, and bells and whistles?
One of the key drivers for employee benefit plans
is basic human psychology.
According to Maslow's Hierarchy of Needs,
we homo-sapiens have an order with which we prioritize
what's important to us.
At the very bottom of the pyramid
you'll find the essentials like food, water, shelter,
and just one level up there's safety and security.
- For our ancestors,
that might've looked like avoiding predators
or natural disasters, but in modern society,
how we make our money plays an enormous part
in how we experience that safety and security.
When our income is erratic or we get let go from a job,
it can really feel like a fault line
has shifted in our emotional foundation.
- Prior to the industrial revolution,
the majority of the labor force
was based in agriculture on farms.
Your job security was based on the fact
that you were born into a certain family
and, by default, your job and place in society
was basically preset.
But as soon as industries like manufacturing
and mass transportation took hold,
there was a new opportunity for consistent income,
which can be pretty appealing when you're used to hoping
and praying that strange weather
or a pest infestation doesn't ruin your financial security.
- Next came the first defined benefit plan
or what we may think of today as a retirement plan.
The earliest private sector defined benefit plan here
in the US was offered
by the American Express Railroad Company in the late 1800s.
Similar offerings were also adopted by banks,
factories, and public utilities.
The setup worked like this.
After you left your job,
you would continue to get paid by the company,
often a percentage of your salary,
but you had to have worked at the company
for a significant amount of time, say 10 to 20 years,
and you usually had to be over 60.
Given that the average 20 year old
in the late 19th century was only expected
to live to around 60 or maybe 65,
employers were definitely playing it safe.
- Things really started to heat up in the 1920s,
not long after the ratification of the 16th Amendment
which established the perennial favorite,
the federal income tax.
Almost immediately afterwards,
Amendments created a laundry list of legal ways around it,
also known as exemptions.
One of the earliest exemptions allowed employers
to deduct whatever they contributed
to their employees pension plans.
This provided an extra incentive
and the age of normalized retirement benefits
came into full swing.
- You can see,
what started as an effort to meet our basic human needs
of safety and security has morphed
and evolved over the last century.
Companies today keep piling on more
and more of these perks to attract high-quality employees,
so much so it's getting harder
to effectively compare offers.
- Heck, I'll admit if someone offered me
a free tacos every day benefit,
I have a hard time focusing
on what I'm actually getting paid.
So let's dig into how to go about calculating
your total compensation.
I think it's time to... (drum roll)
- [Both] Run the numbers.
- This is Taylor.
They are looking to make a big move from a sales job
to a management position at another company.
They've received two offers that look pretty different
on paper and would like to compare them side by side.
- Offer one comes from a well-established
online bike sales company, We Like Bikes.
They've offered the following,
a $60,000 base salary,
two-thirds of health insurance premiums covered,
a free gym membership,
and the possibility of a 5% annual bonus.
After their first year,
they'll be eligible for 10 paid vacation days a year,
and a 401k with a 3% match.
- Taylor's goal should be to try
and whittle all this down into an hourly pay rate.
The hours are capped at 40 hours a week,
and assuming they work 50 weeks a year,
that gives us 2,000 working hours annually.
Just the base alone would come to $30 an hour.
The average individual cost of healthcare premiums comes
to about $7,400 a year,
with employers usually paying for 83% of that tab.
But remember, We Like Bikes is paying the two thirds.
So that's worth an extra $2.47 an hour.
Not bad at all.
- The $90 a month gym membership tacks on
another 54 cents an hour.
The possibility of a 5% bonus isn't a sure thing,
but Taylor feels confident they can hit their goal
so that's another $1.50 an hour.
So for the first year with the company,
this offer is worth $34.51 an hour
or $69,020 annually.
In the second year, an extra 90 cents an hour is added
for the 401k match
and an extra $1.38 for the 10 days paid vacation,
which brings the new number to $36.79 an hour
or $73,580 for the second year and beyond.
Now obviously, this isn't money they'll have
in their pocket after every hour of work,
but rather the approximate worth
of the total compensation expressed in an hourly format.
- Let's look at the second offer.
This is a tech startup called Educatopia
with an open sales role selling software to schools.
They're offering $72,000 base salary,
lunch in their fancy cafeteria every day,
and five stock units upon signing
with the potential for more to be granted as bonuses.
They even offer two weeks of paid vacation
after the first year,
but right now there's no 401k match
and they only pay a quarter of the insurance premiums.
This one's a little trickier, but let's see what we can do.
- Base salary works out to $36 an hour.
Nice.
Now let's say that lunch is worth 12 bucks a day
times 250 working days a year is an extra $1.50 an hour.
Now the covered quarter of insurance premiums tacks
on 93 cents an hour bringing us to $38.43 in year one
and $40.58 in year two.
So despite the fact that they'll be on their own
to figure out retirement savings,
this is still looking pretty good.
- Not so fast, Taylor.
What if, after chatting with a potential coworker
at the final interview, it becomes clear
that the company's culture seems
to encourage working late and on the weekends.
It's not uncommon for startups
to expect 50 hour work weeks from their employees.
If, in reality, Taylor ends up working
an extra 10 hours a week,
those hourly rates tank to $30.74 year one
and $32.47 year two.
Suddenly the first offer is looking the mighty good again.
The only thing that could possibly tip the scales,
stock units, are a gamble at this point.
So they'll have to think nice and hard about how much risk
and how much grind they're willing to tolerate.
- Now, we understand that some job benefits don't come
with a price tag and can't be crunched on a spreadsheet.
Jobs can offer benefits like working from home
or flexibility of work hours
that are more of a personal values conversation
than a financial one.
It's also critical to take the time to get a feel
for who your direct manager is going to be
and what the growth opportunities are.
A 2019 study found that 57% of employees quit their job
because of their direct manager.
As the saying goes, people don't quit jobs.
They quit bosses.
- Remember, when it comes to picking the right job for you,
the salary is important, but it's not the whole picture.
You are giving them your most valuable
non-renewable resource, your time.
- So do your digging, run those numbers beforehand,
and you'll be reaping the benefits for years to come.
- [Both] And that's our two cents.
- Quick before you go,
do you know what you want to be when you grow up?
- No matter your answer,
we think you should check out Future of Work,
a new six-part docu-series on PBS Voices hosted
by Julia and me that explores
the real, big work-related questions
that Americans are facing today.
Everything from debt and the gig economy
to career identity, and so much more.
- Check it out.
Link in our description
and be sure to tell them that "Two Cents" sent you.
Thanks to our patrons
for keeping "Two Cents" financially healthy.
Click the link in the description
to become a "Two Cents" patron.
(playful music)
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