If you provide employer-paid healthcare insurance for your employees, show them the chart below the next time you are discussing salaries with them, suggests Barry Ritholtz writing for Bloomberg.com. It demonstrates that real (inflation-adjusted) compensation has risen 61 percent since 1970. Yet despite that increase in compensation, when it comes to wages–the cash portion of compensation that goes into the pockets of employees–have only increased less than 3 percent during that period.


How can compensation increase 61 percent but wages less than 3 percent?

The answer can be seen in the Federal Reserve chart below. It shows two ways to measure employee compensation.

compensation-grapht

 

TOTAL COMPENSATION 61% | The blue line tracks total compensation (adjusted for inflation) and shows that between 1970 and today, total compensation rose 61 percent. Total compensation includes wages, various worker benefits such as matching 401(k) contributions, health insurance, disability insurance, paid vacation and leave plus any employer-paid taxes. By far, the largest share of the increase in total compensation has been healthcare insurance.

WAGES  3% | The green line tracks wages–or the cash portion of compensation. Barry Ritholtz says, “it isn’t a stretch to surmise that most employees don’t really appreciate how substantial this non-wage compensation is; nor do they realize how much healthcare costs, the biggest part of their non-wage compensation, have risen. So while the total amount companies spend on compensation has increased a good deal, it sure doesn’t feel that way to many workers.”

What are the ramifications?

If healthcare insurance were not tied to employee compensation, much of that 61 percent increase in compensation would have gone into the “wages” line. As it is today, the total compensation approach masks much of the compensation growth workers have received. Moreover, because the payments of healthcare-related costs are handled by a third-party payor (the insurance company), employees (patients) do not always recognize the significance of the value they are receiving.

Bottom line

Obamacare is making a hard “perception” issue even greater. Employers must balance the perception that compensation is growing while wages are stuck. But in the midst of political discord and misinformation (from all sides of this issue), finding a way to improve, reform or replace our healthcare insurance system–or even tweaking it–seems an impossible challenge.

VIA |Bloomberg.com


Thinkstock

Related Articles