The total compensation formula
- Base salary: the fixed annual pay.
- Expected bonus:
base × target bonus % × probability it pays out. A target bonus is not a promise, so weight it by how often it has paid out in recent years. - Retirement match:
base × MIN(your contribution, match cap) × match rate. "50% up to 6%" means the employer adds 50 cents for every dollar you put in, on up to 6% of your salary. - Benefits value: what you would pay yourself for the same cover. The employer's share of the health insurance premium is a fair estimate.
- Equity per year: the grant value divided by the vesting years, for example an RSU grant of $24,000 over 4 years is $6,000 a year.
In Excel, with the offers in columns B to D: =B2+B5+B9+B10+B12, filled across.
Working through the three offers
Offer A pays $92,000 base with a 10% target bonus that paid out 80% of the time, an expected $7,360. The match of 50% up to 6% adds $2,760 and health cover is worth $7,200, for a total of $109,320.
Offer B has a lower base of $88,000 but a 15% target bonus at 60%, an expected $7,920, a 100% match capped at 4% worth $3,520, health cover worth $9,600 and RSUs worth $6,000 a year. Its total is $115,040, the highest. Offer C pays the lowest base, $85,000, no bonus and no equity, but the richest benefits: a full 6% match worth $5,100 and health cover worth $11,400, for $101,500. The gap between the bases is $7,000, the gap between the totals $13,540.
Worked example: total compensation of three job offers
The yellow cells are the terms of each offer. The bonus, match, equity, totals and the winners are formulas.
| A | B | C | D | |
|---|---|---|---|---|
| 1 | Item | Offer A | Offer B | Offer C |
| 2 | Base salary, $ | 92,000 | 88,000 | 85,000 |
| 3 | Target bonus, % of base | 10% | 15% | 0% |
| 4 | Chance the bonus pays out | 80% | 60% | 0% |
| 5 | Expected bonus = base × target × chance | 7,360 | 7,920 | 0 |
| 6 | Your retirement contribution, % of base | 6% | 6% | 6% |
| 7 | Employer match rate | 50% | 100% | 100% |
| 8 | Match cap, % of base | 6% | 4% | 6% |
| 9 | Retirement match = base × MIN(contribution, cap) × rate | 2,760 | 3,520 | 5,100 |
| 10 | Employer health premium (benefits value), $ | 7,200 | 9,600 | 11,400 |
| 11 | RSU grant, vesting over 4 years, $ | 0 | 24,000 | 0 |
| 12 | Equity per year = grant ÷ 4 | 0 | 6,000 | 0 |
| 13 | Total compensation per year | 109,320 | 115,040 | 101,500 |
| 14 | Hours per week (incl. usual overtime) | 40 | 45 | 40 |
| 15 | Total compensation per hour worked, $ | 52.56 | 49.16 | 48.80 |
| 16 | Highest total compensation | Offer B | ||
| 17 | Highest pay per hour worked | Offer A |
- B5
=B2*B3*B4Expected bonus, filled across - B9
=B2*MIN(B6,B8)*B7Retirement match - B13
=B2+B5+B9+B10+B12Total compensation - B15
=B13/(B14*52)Total compensation per hour worked - B16
=INDEX(B1:D1,MATCH(MAX(B13:D13),B13:D13,0))Name of the best offer
The offers are fictional. Amounts are gross, before tax. Benefits, matching and equity rules vary by employer and country.
Then divide by the hours you will really work
Offer B expects about 45 hours a week. Spread over 52 weeks, its total compensation is 115,040 ÷ (45 × 52) = $49.16 per hour worked, against $52.56 for Offer A at 40 hours. Per hour, A pays more, and the extra five hours a week, 260 hours a year, are worth $13,665 at A's hourly value. Which offer is better depends on whether you want the money or the time.
Do the same for the commute: an extra hour a day adds roughly 230 unpaid hours a year, plus travel costs. A cost-of-living difference between cities matters too: divide each total by a price index of its city before you compare.
Valuing equity carefully
RSUs are worth the share price times the number of shares when they vest, so their value moves with the share price. Stock options are worth only the gain above the strike price, and nothing if the share price stays below it. Private-company shares may be hard to sell for years. A cautious approach is to value equity at a discount, or to calculate the total with and without it and decide whether the offer still works without the equity.
Check the vesting schedule as well. With a one-year cliff, you receive nothing if you leave in the first year. Signing bonuses are paid once, so spread them over the years you expect to stay, and check whether you must repay them if you leave early.
Beyond the money
Total compensation compares the money. Growth, the team, job security and flexibility matter as well. A weighted scorecard puts them in one table: give each criterion a weight, score each offer from 1 to 10, score the money as total compensation ÷ highest total × 10 and add up the weighted scores with SUMPRODUCT. When you negotiate, use the same sheet: a raise in base also lifts the bonus and the match, because both are percentages of base. For pay within a salary band, see compa-ratio.
Common mistakes
- Comparing base salaries only. In the example the base gap is $7,000 but the total gap is $13,540, and the ranking changes.
- Counting the target bonus in full. Weight it by how often it actually paid out.
- Taking the match rate without the cap. A 100% match capped at 4% is worth less than a 100% match up to 6%.
- Valuing equity at the grant value per year. Divide the grant by the vesting years, and value options only above the strike price.
- Ignoring hours. A higher total for 45 hours a week can pay less per hour than a lower one for 40.
- Mixing gross and net. Compare all offers before tax, or all after tax, never a mix.
Frequently asked questions
How do you calculate total compensation?
Add the base salary, the expected bonus (base × target % × payout probability), the employer retirement match, the value of benefits such as the employer health premium, and equity per year (grant value ÷ vesting years).
Is total compensation the same as salary?
No. Salary is the base pay only. Total compensation also includes bonuses, employer contributions, benefits and equity, and in the example it is 19–31% above the base.
How do I compare a job offer with more hours?
Divide each total compensation by the hours you expect to work in a year, for example hours per week × 52. That gives the pay per hour worked.
How do I value RSUs in a job offer?
Multiply the number of RSUs by the current share price and divide by the vesting years to get a yearly value. Their value rises and falls with the share price.