Posted by UNC Executive Development on Apr 30, 2015 10:48:17 AM
Rethinking Total Rewards
There is a perfect storm brewing in workplaces. The economy is recovering, business is picking up, and employers are hiring. At the same time, baby boomers are preparing to leave the workforce which will lead to leadership, skills, and knowledge gaps that could threaten an organization’s future. For the first time since the Great Recession, employers will be working harder than ever to retain and attract the best workers. These retentions and recruiting activities have been traditionally housed with HR business partners and in the compensation domain of HR, but it is time to rethink these activities as part of a broader total rewards strategy.
Total rewards are the comprehensive monetary and non-monetary return employers provide employees in exchange for their time, talents, efforts, and results. These returns include health care services such as medical, prescription, dental and vision coverage, wellness offerings such as assessment and screenings, retirement benefits such as pensions, 401(k)s, retiree medical and life insurance, work-life programs such as paid and unpaid time off, dependent care, short-term and long-term disability, and flexible work schedules (Kwon and Hein, 2013). They also include base salary, bonus, stock options, variable pay, executive salary, and perks like company cars.
Offering employees career opportunities are also part of a total rewards strategy, a practice an increasing number of employers are adopting. Career opportunities include learning in the form of tuition assistance, corporate universities, attending seminars and conferences, self-development, challenge assignments, and even sabbaticals. Coaching and mentoring also fall into this category, along with advanced opportunities like overseas assignments, career ladders and pathways, and providing employees on and off ramps throughout their careers.
Good total rewards packages attract, retain, and motivate employees to do their best work, and they should be modified on a regular basis to keep employees engaged and to meet employees’ changing personal and professional needs during their career cycles.
Unfortunately, total rewards strategies are slow to change in most organizations. A survey by HR analyst firm Accelir found that only 15 percent of the organizations they surveyed in 2013 said they had revised their total rewards programs over the last two years. Business strategies in high-performing organizations change as frequently as every 12 to 15 months. This means that in most organizations, total rewards are not aligned with the organization’s business strategy and are most likely not having the desired effect of motivating employees and increasing productivity.
High Performing Companies Integrate and Differentiate Total Rewards
High performing companies understand that a comprehensive total rewards strategy differentiates them from their peers, attracts talent, improves employee productivity, and gives them a higher return on investment. In fact, according to a 2012 total rewards study by AON Hewitt, high performing companies are more likely to say that total rewards is an area of focus in their organizations. Consulting firm Towers Watson observes that companies which adopt an integrated total rewards strategy are five times more likely to say their employees are engaged and two times more likely to report that their financial performance is significantly better than their peers.
High performing companies also actively manage their total rewards approach. These companies:
- Align total rewards to business objectives.
- Develop a total rewards strategy that includes clear goals, objective measures, and competitive positioning.
- Use measures other than cost to define success.
In other words, high performing companies seek to integrate their total rewards strategy into every aspect of their businesses. At the same time, these organizations differentiate rewards to create an external competitive advantage and target critical internal populations like high-potential employees, top performers, and women to develop, engage, and retain.
High performing companies also actively and regularly communicate their total rewards strategy to employees. Organizations should have an annual conversation with employees about all of the total rewards it offers employees, and not just about the annual raise that’s given during a performance review. In addition, HR and talent management professionals must prepare managers through training and development to have the confidence to have a compensation conversation with their employees.
How to Launch a Total Rewards Strategy
Human resource and talent management professionals whose organizations lack a total rewards strategy or whose strategy needs to be tweaked so it is integrated with business goals and differentiated to meet employees’ needs may want to consider the following steps offered by AON:
- Define the organization’s differentiator. High-performing companies are shifting more of their total rewards to the areas of career development and opportunities, learning and development, and coaching because these benefits are harder for other companies to replicate and because it provides them with top-level talent.
- Learn what motivates your organization’s employees. Different workforce segments desire a different mix of rewards. The best way to know what the employees in your organization are looking for is to ask them.
- Develop a total rewards brand. High-performing companies develop a total rewards brand that lets employees know what is expected of them and what they will get in return. High-performing companies develop and clearly communicate this employee value proposition.
- Personalize the experience. Employers should make sure that each employee understands their own personalized total rewards package by receiving personalized statements and other communication. These statements not only quantify the package, they also let employees know what they need to do to be successful.
- Use multiple channels of communication. When developing a total rewards strategy, a key to its success is to ensure that it is widely communicated to all employees. This helps communicate the brand internally and externally and can also go a long way in helping employees understand why the organization has customized total rewards to meet different groups’ needs.
Organizations are increasingly global, more diverse, and in dire need of finding and keeping the best talent. As the work place changes, leaders must also change their views of total rewards. To gain a competitive advantage, it is more imperative than ever to ensure that total rewards are aligned with and integrated into an organization’s short- and long-term business strategy, are frequently communicated to all employees, and are differentiated enough to appeal to the needs of key workforce segments.