MBA Compensation and Benefits

MBA Compensation and Benefits Frequently Asked Questions Developed by MBA Career Services Center

Session Goals • To provide an introductory overview of the most common employer compensation and benefit programs. • Identify which benefits and compensation may be negotiable. • Provide participants questions to consider asking employers regarding benefits and compensation. Developed by MBA Career Services Center

Important! This is an informational workshop! It is not a negotiation workshop. • Employers offer benefits because they are inspired to do MORE for employees than a routine paycheck. • Every benefit offered by an employer is costing the employer something and increasing your total compensation package! • You can’t ask and/or negotiate for every benefit outlined in this presentation! • CSC does not recommend “drilling” the employer with every question in this presentation. Developed by MBA Career Services Center

What is “total” compensation? • Total compensation is the combination of cash, benefits, retirement and perquisites paid or earned by you for work you perform on behalf of the company. • So, let’s break these down . . . Developed by MBA Career Services Center

What is cash compensation? • Compensation is cash paid to you by the company for the work you perform. • There are two types of cash which may be paid to employees by employers. • Fixed compensation • Variable compensation Developed by MBA Career Services Center

Fixed compensation is cash which will be paid to you for a specific period of time or at the end of a certain period. Annual base salary paid weekly bi-weekly monthly Signing bonuses paid once Guaranteed bonuses, if offered by the company typically paid quarterly or annually Variable compensation is cash which may be paid to you for individual, department or company performance. Variable compensation is not guaranteed to you nor does it have a guaranteed payout amount. Company bonuses Department bonuses Individual bonuses Incentive bonuses Long term bonuses What is the difference between fixed and variable compensation? Developed by MBA Career Services Center

Is fixed compensation negotiable? • Base salaries are negotiable. • If you choose to negotiate, then negotiate with a reason! The reason cannot be someone else was offered more . • If you feel the pay being offered, for the work you will be completing is too low AND the qualifying education and experience you have is greater than what is offered . . . then you may want to consider negotiating the base salary. • Consult with CSC staff before negotiating for more. Developed by MBA Career Services Center

Are signing bonuses negotiable? • A signing bonus is a one time bonus enticing you to accept an employment offer. • Signing bonuses are negotiable. • It may be paid when you start. • with first payroll check • or, within first month • Or, paid after a certain period of time. • three months • six months Developed by MBA Career Services Center

Are guaranteed bonuses negotiable? • Some firms guarantee an annual cash bonus. regardless of your or the firm’s performance. • Guaranteed bonuses may be negotiable. • Seek to understand what the bonus is for and when it is paid. • It may be possible to negotiate the amount, payment frequency or date which the guaranteed bonus is given. Developed by MBA Career Services Center

Is my variable compensation negotiable? • Variable compensation (bonuses) are less likely to be negotiable. • Bonuses may be paid periodically and are given as cash, company stock, retirement or a combination of these. • Bonuses are dependent on the performance of you, your division/unit, the company or, a combination of these. • Bonuses are frequently subject to company policies and company policies can change with or without notice. Developed by MBA Career Services Center

How can a bonus be paid as future retirement income? • When bonuses are paid in stock or retirement, the payment is “deferred”. • Deferred retirement income is only accessible to you after you remain with the company for some period of time. • Deferred compensation is usually taxed when used, not when earned. Developed by MBA Career Services Center

Seek to understand the employers fixed compensation program and philosophy. How did you arrive at this base salary? When would I be eligible for an increase to my base salary? What variables are considered when giving increases to base pay? For variable compensation, seek to understand the employers historical payouts for the program. What metrics are used to determine the bonus program? Over the past three years, what was paid out to similarly situated employees? Has the bonus ever NOT been paid out? Questions to dig deeper regarding compensation? Developed by MBA Career Services Center

What are benefits? • Benefits are supplemental income provided to you that is not paid in cash to you each week. • Most employers will offer a benefits orientation program which will explain their benefit program in detail. Request an overview if you are not formally offered something! • There are five categories of benefits: • Health related benefits (insurance) • Time related benefits (vacation, sick, personal, holidays) • Retirement benefits (defined contribution and defined benefit) • Government mandated benefits (COBRA, FMLA, Workers Compensation Insurance) • Perquisites – Perqs Developed by MBA Career Services Center

Health Related Benefits • Medical insurance (also known as medical “coverage”). • Medical insurance typically begins for you and your legal dependents some time after your employment start date. • End of the month • After three months • You may be required to share in the cost of the monthly premium which is deducted from your paycheck. • Most employers will offer a selection of plans, varying in the amount of your monthly premiums, co-pays and deductibles. • Prescription drug coverage may be included within your medical coverage or it may be separated out as a separate policy. Developed by MBA Career Services Center

Dental and vision insurance Similar to prescription drug coverage, dental and vision coverage may be offered separately or combined with your medical policy. When offered, the coverage(s) typically begin for you and your legal dependents some time after your employment start date. end of the month after three, six or nine months after one year Employers may give you a choice of plans. Employers may expect you to contribute toward the monthly premium. Health Related Benefits continued Developed by MBA Career Services Center

What are flexible spending accounts (FSA)? • FSA’s are pre-tax savings account for you to use when paying “out of pocket” expenses for healthcare. • Money deferred to an FSA can only be used for qualifying expenses. • Unused FSA money is forfeited by the employee and employer. • FSA’s save about 25% and can be used to pay for: • Healthcare co-pays (medical, dental, vision & Rx) • Healthcare deductibles (medical, dental, vision & Rx) • Over the counter (OTC) products • cold medicine • headache medicine • Some employers may offer these same savings account for dependent childcare. Developed by MBA Career Services Center

Health Related Benefits continued • Life Insurance • Typically offered by the employer for some base amount (one years base salary) with an option to purchase more for yourself. An employer may even offer you the ability to purchase separate policies for legal dependents. • Life insurance is a one time payment made to a designated beneficiary. • Accidental Death & Dismemberment • A supplemental plan designed to reimburse you for loss of health or life as a result of business-related work. • AD&D is a one-time payment like life insurance. This may be paid by your firm on your behalf, with the option of purchasing additional coverage. Developed by MBA Career Services Center

Disability Insurance Short term disability (STD) This is provided as income protection should you be unable to perform your job due to an injury or illness. It typically lasts up to six months. It pays you a percentage of your base compensation (not bonuses). Typically, all vacation, personal and sick time is used before this insurance pays out. Long term disability (LTD) This is provided as income protection should you be unable to perform your job due to a long term injury or illness. It typically starts after STD is exhausted. It pays you a percentage of your base compensation (not bonuses). Health Related Benefits continue Developed by MBA Career Services Center

Can I negotiate my healthcare benefits? • Government regulations require employers to offer identical healthcare benefits to all employees. • Therefore, these benefits are not negotiable. • Exceptions are possible, if your employer creates an individual employment agreement with you. This would be very rare. Developed by MBA Career Services Center

Regarding healthcare benefits, seek to understand the choices available and the monthly premium costs. What choices are available to me and my family members? When does coverage begin? What is the monthly premium? Do you offer a flexible spending account (FSA)? Regarding life and disability insurance, seek to understand the coverage level available and the start date? What is the life insurance coverage level? When am I eligible? Can I purchase more coverage for myself? Can I purchase coverage for my spouse and/or dependents? Questions to dig deeper regarding benefits. Developed by MBA Career Services Center

Healthcare Benefits FYI • Employers are required by government to offer COBRA benefits. COBRA is the Consolidated Omnibus Reconiliation Act. This federal law guarantees that upon separation from an employer’s health insurance, you and/or your family can continue that insurance coverage for a limited time, provided you pay the monthly premiums plus a modest administration fee. • This law is intended to allow people to carry some health insurance while waiting for a new employer’s insurance to begin. Developed by MBA Career Services Center

Healthcare Benefits FYI continued • Employers are required to have Workers Compensation for all employees at a company. • Workers compensation insurance pays for healthcare needed by an individual due to a work related injury. • Employers are granted certain rights such as selecting the physician. • Employees are granted certain rights such as guaranteed payment of medically necessary procedures and services. Developed by MBA Career Services Center

Time Related Benefits • Paid Holidays • These vary by employers and are typically consistent with a Christian calendar and U.S. Celebrations. • December, 25 (Christmas) • July, 4 (Independence Day) • Paid Vacation • Employers provide a limited number of paid days off through the year. • Employees usually start with two weeks (10 working days). • As the years of service increase, the number of paid vacation days typically increase as well. Developed by MBA Career Services Center

Paid Sick Time Company paid time to provide for the care of your health. Some employers will allow you to use it for the care of your dependents (spouse, children). A certain amount of paid sick time may be available when you start your employment or, your sick time may accrue as you work. If it accrues, it may be paid back to you according to company policies. Some employers will require employees to forfeited sick time if it’s not used. Paid Personal Time Company paid time that is subject to company policies but is usually more flexible and can be used for such things as: personal appointments activities for children religious holidays etc. “Time Banks”, “Paid Time Off – PTO”, “Bank Leave Time” The employer may choose to combine sick, personal and vacation time into one pool of time subject to approval by management. Time Related Benefits continued Developed by MBA Career Services Center

Time Related Benefits continued • Leaves of Absence • Some industries such as higher education or high tech, the employers allow an employee to leave the company for a specific event and a specific period of time. • academic leave for degree completion • sabbatical for research of company related topic • sabbatical for functional research related to academic tenure Developed by MBA Career Services Center

Can I negotiate my time related benefits? • In general, company procedures determine an individuals paid time off. • However, it is possible to negotiate additional time off from work. It is important to have justification for the request. Wanting to “stay whole” is an acceptable reason. • If you have a specific need for time off from work, STATE THIS UP FRONT. It should be a legitimate and compelling request (i.e. wedding of an immediate family member such as sister, brother, parent). Developed by MBA Career Services Center

Questions to dig deeper regarding time related benefits. • Regarding time related benefits, seek to know the company policy. • When would I be eligible for more vacation time? • When is vacation time accessible? • Is it available at my start date? • Or, is it available after a certain period of time. • Is this negotiable? • What are the limitations to using each bank of time? Developed by MBA Career Services Center

Time Related Benefits FYI • Employers are required by government to extend FMLA to employees if the company as 50 or more employees at your work location. • FMLA is the Family Medical Leave Act and it allows an employee up to 12 weeks off work due to their own serious health condition or the serious health condition of a qualifying family member (child, spouse and parent). • FMLA does not require an employer pay for your time away from work. • FMLA does require than an employer provide you an equivalent position and pay upon your return to work. Developed by MBA Career Services Center

Perquisites (Perq’s) • Perq’s are unique programs offered by employers to differentiate themselves as an “employer of choice”. • The sky’s the limit with these: • Relocation (certain portions will be taxable income) • Company cars • Employee discounts (car insurance, personal travel, computers) • Health club members • On-site childcare • Tuition reimbursement • Perq’s are negotiable. • Seek to understand what is available. • It would be most appropriate to negotiate perq’s upon promotions within the company (not initially). Developed by MBA Career Services Center

Retirement Related Benefits • Retiree benefits are deferred compensation. • Retiree benefits are offered to supplement an individuals income during their retirement years. • Employers typically offer two types of supplemental retiree savings plans. • defined benefit • defined contribution Developed by MBA Career Services Center

Retirement income is deferred compensation, and therefore it is not taxed on your paycheck, but will be taxed when it is paid to you. If you attempt to withdraw this money before you retire, you will pay a substantial penalty AND additional taxes. If you leave an employer, you generally have three choices regarding the savings. The money from one 401(k) may transfer from one trustee to another. Or, it may be allowed to stay in the former employers account. Or, may need to be withdrawn and invested in an Individual Retirement Account (IRA) to avoid paying applicable penalties and taxes. What is deferred compensation? Developed by MBA Career Services Center

Retiree Related Benefits continued • Defined benefit retirement plans (rarely offered by employers) • Employers collaborate with a trustee and invest corporate monies on behalf of employees. • Employers invest the money, manage the accounts and accept the risk. • Employees receive the retirement income according to the companies written criteria (summary plan description or, SPD). • SPD’s can vary greatly amongst employers. • years of service by employee • age of employee • income earned by the employee during their time Developed by MBA Career Services Center

Retiree Related Benefits continued • Defined contribution retirement (commonly offered by employers) • Employers collaborate with a designated trustee and the trustee provides a specific number of investment options for employees. • Employees invest the money, manage the accounts and accept the risk. • The most common defined contribution retirement plan is a 401(k) in which you defer a portion of your pre-tax compensation to a trustee and the employer may match the contribution at a specific percentage. • Employers can choose to offer only one investment option - employer company stock. • 401(k) accounts are federally insured. That is, if the fund in which you invest goes bankrupt, you will still have access to the money you and your employer contributed. Developed by MBA Career Services Center

Retirement Related Benefits continued • There are three general methods of securing retiree income. • Employer sponsored • 401(k) • stock options • Individual savings • Individual Retirement Accounts (IRA) • other • Social Security • employees pay FICA tax (Social Security Income), a federal tax which is deducted from income you receive from the employer. • employers also pay a federal tax for each employee they compensate. Developed by MBA Career Services Center

Can I negotiate my retiree benefits? • Government regulations require employers to offer identical retiree benefits to all employees. • Therefore, these benefits are not negotiable. • Exceptions are possible, if your employer creates an individual employment agreement with you. This would be very rare. • Or, if part of the companies variable compensation plan includes employer contributions to your savings plan, you may be able to negotiate the variable compensation contributed by the employer. Developed by MBA Career Services Center

Questions to dig deeper regarding retiree benefits. • What is the normal retirement age? • What is the criteria to qualify for the retiree benefit? • Who is the trustee? • Can I rollover my retirement savings from a previous employer? Developed by MBA Career Services Center

Taxable income Any compensation or benefit paid to you that is taxable according to the Internal Revenue Service (IRS). Non-taxable income Any compensation paid to you that does not require taxation according to the IRS. Grossing up – When an employer agrees to pay required taxes on your behalf for compensation they give to you. $1000 paid to you may actually be $1300 paid by the employer Net Amount – The amount you receive after qualifying employer deductions and required taxes or are taken. $1000 paid to you by the employer may result in $700 balance due to $300 in monthly insurance premiums for you and your legal dependents (spouse and children). The remaining $700 will be reduced again to pay for federal, state and local taxes. If your taxes are $200, you would receive $500 net income. Glossary of Terms - compensation Developed by MBA Career Services Center

Premiums The amount charged by a third party insurer to an employer for employee healthcare benefits. The charge is typically a monthly charge and the monthly premium may be paid by both the employee and the employer. Coverage The specific plan design offered by the third party insurer for healthcare. policy exclusions policy limitations how much is paid for the service Legal dependents Individuals recognized by the IRS as legal dependents. spouse children (by birth, adoption, marriage or foster care) parent(s) (in very unique situations as allowed by the employer, typically at cost to the employee) Glossary of Terms - benefits Developed by MBA Career Services Center

Deferred compensation Defined benefit Defined contribution Vesting – The process by which you begin to have access to the money that has been set aside by you and/or the employer. Glossary of Terms – retiree benefits Developed by MBA Career Services Center

Glossary of Terms - other • “At Will” employment • Most U.S. employers with salaried employees offer only “At Will” employment. This means an employee and/or employer can terminate the employment agreement at any time for any reason. • Some employees are “represented” by an organized labor group (union) such as UAW, Teamsters, etc. In these situations, there is a binding contract between the employee and employer. These binding contracts are called “Collective Bargaining Agreements”. • Salaried employees are “exempt” from the Fair Labor Standards Act (FLSA). One consequence is that salaried workers do not receive overtime. Developed by MBA Career Services Center

Where do I go for more questions? The CSC staff is always available for consultation regarding employment offers. And, if the questions are highly specific we can help you formulate the questions to ask the employer before accepting or a declining the offer. Developed by MBA Career Services Center

PLEASE COMPLETE AN EVALUATIONTHANK YOU. • Distribute handout. Developed by MBA Career Services Center

MBA Compensation and Benefits