Target total cash compensation (TTCC) is a way for employers to offer a competitive package that aligns with employee expectations and market rates. It’s also a useful metric for employees to evaluate job offers. From factors that impact it to all the benefits it has to offer, here we discuss everything you need to know about TTCC.
Target total cash compensation (TTCC) refers to the total amount of money an employee can earn in a given period. It consists of a fixed base salary, bonuses, and other forms of compensation.
Employers can use TTCC to attract and retain talented employees by offering a competitive package. On the other hand, employees can use this parameter to gauge if the offered compensation reflects their skills and experience.
In this article, I’ll walk you through what target total cash compensation is, the factors that influence it, and its benefits. I’ll also provide answers to a few frequently asked questions.
What is Target Total Cash Compensation?
Target Total Cash Compensation (TTCC) is commonly defined as the total amount of money an employee can expect to earn in a given period. It includes base salary, bonuses, commissions, and other forms of remuneration such as stock options, equity grants, and benefits.
TTCC and its elements vary from employee to employee depending on the position, level of responsibility, industry, and location.
There is no universal formula for calculating TTCC applicable in all cases. However, there are a few common elements that are generally a part of the target total cash compensation:
- Base salary: This is the fixed amount of money an employee receives for their work. It is based on the job level, experience, and market rates.
- Performance-based compensation: This includes remuneration such as bonuses, commissions, and other forms of compensation that are based on the employee's performance or the achievement of specific goals.
- Equity grants: These types of compensation are often used in technology and other new-gen companies. Employees can be granted stock options or other forms of equity as part of their compensation package.
- Additional benefits: The target compensation package can include health insurance, retirement plans, vacation time, and other perks offered by the company. Again, the value of these perks may not be fixed across the board. They can vary from employee to employee.
8 Factors That Affect Target Total Cash Compensation
Target compensation can be a fluid measure. Target total cash compensation standards vary from company to company and sector to sector.
Here are eight key factors to keep in mind:
1. Budget
Every company has its own budget relating to employee pay. Often, these are determined by fair wage laws and competitive market rates. Within these parameters, there is room for variance. A new company may have to spend more on attracting skilled people, and an established company may be content with paying only the market rates.
2. Commission structure
Commissions can be a key component of target compensation. There are different types of commissions that an employee can expect. It depends on the nature of the business, the products or services sold, and the goals and objectives of the company.
Let’s take a quick look at a few types of commission structures:
- In a straight commission, the employee is paid a percentage of the total sales they generate.
- Tiered commissions involve different rates at different levels of sales performance.
- With residual commissions, the employee earns a commission on recurring sales or subscription renewals.
- A profit-based commission depends on the profitability of the sale rather than the total volume.
Check out our guide to learn more about sales commission plans and how to create one.
3. Revenue target
Revenue targets provide an objective for the employee to work towards. They connect compensation with the financial goals of the company.
For example, a sales employee’s target compensation may be based on the revenue target for the year. They may be eligible for performance-based compensation such as bonuses or stock options if they exceed the target.
Similarly, a manager’s target compensation could be linked to the revenue target of their team or department. The manager may be eligible for additional compensation or bonuses if the team exceeds the target.
4. Communication
Clear communication is critical to ensure employees understand their target compensation and expectations. It can play a crucial role in both achieving and negotiating target compensation.
If an employee is not meeting performance targets, effective communication from the manager can identify areas for improvement. They can guide the employee in the right direction and help achieve their target compensation.
Similarly, if an employee exceeds performance targets, communication from their manager can ensure that they are appropriately recognized and rewarded.
5. Reporting
Reporting and performance metrics allow the company and employees to track progress toward targets that affect target compensation. Reports on sales performance can identify trends and highlight areas where additional resources may be needed.
Further, reporting and feedback can ensure that employees clearly understand their performance expectations and progress toward targets.
6. Employee Mix
Employees have different expectations based on roles, skills, and experience. A mix in terms of their talents can affect overall target compensation.
Some industries may have a higher demand for specific skills. This can drive up the compensation for those roles. If there is a shortage of workers with certain skills, employers may have to offer higher compensation to attract and retain them.
7. Availability of Opportunities
When target compensation is based mainly on external factors, employees and employers will need to be clear on opportunities for better pay.
In new ventures, for example, there may be more excellent opportunities for sales, which will drive up the target compensation. At the same time, established companies may have more options for higher volume sales, which again affects compensation.
8. Performance Management
Performance management can affect target compensation by making it easier for employees to reach goals. When companies provide adequate training and resources, an employee’s target compensation can increase. Other factors that link compensation to team performance should be taken into account.
What are the Key Benefits of TTCC?
Here are some benefits of setting up TTCC:
- Clarity around the total compensation package.
- Employee motivation levels can rise when target compensation is linked to goals.
- Attractive target compensation can be a factor in attracting and retaining those with valuable skill sets.
- Target compensation can be used as a tool to align employee performance with overall business goals.
- When targets and goals shift over a period, target compensation can be a flexible and agile means to communicate these changes to employees.
FAQs About Target Total Cash Compensation
Well, that was all about TTCC, but I’m sure you might have some questions. Here are three commonly asked questions about TTCC:
1. Who does target compensation apply to?
Target compensation can apply to any employee in an organization. It is prevalent in roles that are performance-driven, such as sales.
2. How to implement a target compensation plan?
Follow these steps to implement your TTCC plan successfully:
- Define the compensation goals and objectives, such as motivating performance or attracting top talent.
- Conduct a competitive analysis.
- Determine the elements of target compensation.
- Put a compensation plan in place.
- Monitor and adjust over time.
3. Why should you enquire about an employee’s total compensation expectations?
The answer to this question helps employers determine marketplace expectations, the employee’s view of their roles and skills, and any scope for negotiation with target compensation.
Wrapping Up
Target compensation is a level of compensation that an employee can expect to earn in a given period. It is typically composed of base salary, bonuses, and other forms of compensation.
Target compensation is often linked to an employee's performance. It can provide clarity and transparency around compensation expectations. Target compensation also provides flexibility and agility in compensation management.
In many ways, target compensation can motivate performance, attract and retain high-performing employees, and align employee goals with business goals.
