How to Weigh Job Benefits

Summary

This 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

00:00

🍦 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.

05:01

🔎 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.

Keywords

💡Employee Benefits

Employee benefits refer to various perks and additional compensation offered by companies to attract and retain workers, beyond just the base salary. In the video, these include things like health insurance, gym memberships, retirement plans, and stock options. The video compares these benefits to toppings at an ice cream shop, emphasizing how these perks often play a significant role in modern job selection, sometimes overshadowing base salary.

💡Total Compensation

Total compensation is the sum of an employee's base salary and additional benefits. The video encourages viewers to calculate their total compensation by including not only salary but also perks like healthcare coverage, gym memberships, and bonuses. This holistic view helps job seekers compare different offers more effectively, as seen in the example where Taylor evaluates two job offers by calculating the value of each benefit and translating it into an hourly wage.

💡Maslow's Hierarchy of Needs

Maslow's Hierarchy of Needs is a psychological theory that ranks human needs in a pyramid, with basic needs like food, water, and safety at the bottom, and self-actualization at the top. In the video, it is used to explain why employee benefits exist, linking job security and financial stability (through benefits) to the lower levels of the hierarchy—safety and security. This highlights how employers aim to address these needs to attract and retain employees.

💡401k Match

A 401k match is when an employer contributes to an employee’s retirement savings plan based on the employee’s own contributions. This is one of the key benefits mentioned in the video when evaluating job offers. In Taylor's case, the company 'We Like Bikes' offers a 3% match, which increases the total compensation over time, making it an important factor when comparing different job opportunities.

💡Stock Options

Stock options give employees the right to purchase company stock at a predetermined price, offering potential future financial gain if the company grows. In the video, this is discussed in the context of Educatopia’s job offer to Taylor, where stock options are part of the compensation package. However, the video also points out the risks involved, as the value of these options depends on the company's future success.

💡Base Salary

Base salary refers to the initial rate of compensation an employee receives, not including any bonuses, benefits, or perks. The video compares base salaries from two job offers—$60,000 for We Like Bikes and $72,000 for Educatopia—before factoring in additional benefits. The base salary serves as the foundation for calculating total compensation but does not represent the entire value of an employment offer.

💡Work-Life Balance

Work-life balance refers to the equilibrium between personal life and professional responsibilities. The video addresses this concept when discussing the potential for longer work hours at the startup Educatopia, which might expect 50-hour workweeks. This reduces the value of the higher salary, illustrating how work-life balance can be an essential, non-monetary factor in job decisions.

💡Health Insurance Premiums

Health insurance premiums are the amount an employee or employer pays for health coverage. In the video, Taylor compares two job offers with different levels of health insurance coverage: We Like Bikes covers two-thirds of the premium, while Educatopia only covers one-quarter. This difference significantly impacts the total compensation, emphasizing the importance of healthcare benefits in job offer evaluations.

💡Retirement Plan

A retirement plan is a financial arrangement to provide income after an employee retires. The video references the history of retirement plans, starting with defined benefit plans offered by companies like American Express in the late 1800s. Today, 401k plans are more common, and in the video, Taylor’s decision-making process includes evaluating the presence or absence of retirement plan contributions from employers.

💡Company Culture

Company culture refers to the shared values, practices, and behaviors within an organization. The video hints at the importance of understanding a company's culture, particularly when Taylor learns that Educatopia has an intense work environment with long hours. This aspect of job evaluation, though intangible, can significantly impact job satisfaction and is a critical factor beyond just salary and benefits.

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)