When a raise in salary is not the best option Salary is the employee´s most wanted compensation feature and at the same time one of the employer´s most important cost.
three percent salary increase than using the same amount of money to buy group benefits.
I said “feature” because it does not constitute the whole compensation by itself. Workers are compensated as well by vacations, pensions, bonuses, trainings and very often by health, disability and life insurance among other additional benefits. A comprehensive compensation package is the main reason why certain companies attract and retain key employees. To exemplify this, let us think about what job we would rather take. One that pays 50,000 only if we are going to work or other that pays the same amount while we take our vacations and 33,000 if we find ourselves unable to work due a sickness or injury. I bet on the second option.
From the employee perspective: Having the company purchase benefits on behalf of employees increases the actual amount of compensation when federal and provincial income tax rates are taken into account, as seen in the table below.
Having established that real fact, we can now proceed to see the subject from the economic stand point of view. Here we´re going to prove why a raise in salary isn´t the best cost-effective strategy to enhance a compensation package. Let us consider a three percent increase on a $35,000 salary for an employee in Ontario, versus an equivalent investment in a group benefit program (e.g. Health, Disability and Life Insurance)
From the employer perspective: As illustrated in the following table, it can cost $44.66 more per employee to implement a
Does that mean that I´m not in favor of salary increases? The answer is No. However, I believe that a combination of the two strategies is in most cases a better option.