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Supplemental Analyses - Benefits Valuation

 

A key component of an employee's earning capacity is often the value of benefits paid for by the employer above an beyond base wages.  The most significant components are usually retirement and health insurance.  According to statistics from the Bureau of Labor Statistics, average employer payments for compensation include only 82% for base wages, as shown in the following chart.

For many circumstances, fringe benefits on projected future earnings are properly estimated as an average percent of base wages.  For example, when projecting the future earnings of a recent college graduate, the expert may be basing the annual wages on the average expected from various occupations and employers to be held over the graduate's lifetime.  In such a case, fringe benefits can only be estimated as the average amount paid for those positions.

However, various circumstances arise where compensation is best measured with a comprehensive evaluation of an employee's benefit package.  Most often this arises where the subject has a long track record with a single employer which might be expected to continue for the foreseeable future.  Here, determination of the value of benefits from that specific employer can provide a case-specific valuation of this portion of the subject's earning capacity.

An important example arises from long-term employees of a (usually major) corporation with a defined benefit pension plan.  For these plans, the pension benefit is usually computed using the employee's earnings from the highest five years of employment and the number of years employed.  Both of these equation components increase with each year of tenure, making the value added to the present value of expected pension receipts more and more significant.  The following chart provides an example of the value of the increased pension present value stated as a percentage of the employee's base wage.

 

 

 

 

 

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