- 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)