What is Total Rewards

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What is Total Rewards?

New pay is a way of aligning & optimizing performance

Posted 27 January 2019 | Revised 22 March 2020

Total Reward

In an extremely competitive market place for talent, most companies are focusing on incentives and intrinsic elements to motivate and improve retention. Any arrangement must be looked at within the context of the company philosophy on ‘Total Reward’.

Exhibit 1: Reward Elements

Why is reward a strategic issue?

Represents an investment in the most valuable asset in the organization: Human Resources
Is often the biggest recurring annual cost
Provides an excellent mechanism for aligning organizational goals with employee goals
Provides major communication to employees about what the organizational values are and their progress in the organization
Major leverage on employee behavior

How is pay changing?

Business oriented “New Pay” is a way of aligning & optimizing performance.
Administration oriented “Traditional Pay” is a way of controlling employment costs.

Exhibit 2: New Pay

Objectives of Reward Strategy

To enable the organization to recruit, retain and motivate the caliber of employee necessary to support the achievement of organization goals without incurring unnecessary or excessive costs.

Common Reward Life-Cycle Stages:

Stage 1 - Start-Up

Pay is managed by the Finance Director
Pay is perceived as an overhead cost to be controlled
No Pay Scales; There are simply ‘spot’ pay levels for everyone
No formal job evaluation
Performance rewards are discretionary
Links between skill and competency acquisition and reward are unexplored

Stage 2 - Maturity

Remuneration levels are set based on systematic monitoring of market data
Competitive benefits of which the core is harmonized among employees
Job evaluation are managed by use of formal approach
Performance rewards are underpinned by formal approach
Flexible approaches to Reward Management to support organization’s strategic objectives
Good communication on reward issues with the employees
A sensible balance is struck between central and devolved control over pay decisions; emphasizing line management involvement in and ownership of remuneration policy

Stage 3 - Old Age

Rigid pay structures are typically based on length of service
Rigidity and over emphasis on status and hierarchy in benefits and entitlement
Long-established, bureaucratic and often outdated approaches to job evaluation reflect old organizational values in design, application and hierarchies requiring an army of specialists to maintain
Performance Management are regarded as dishonest annual rituals
Market monitoring is over-systematized and often very costly
Policy development is over centralized

Stage 4 - Renewal

Policy is decentralized and devoted down to individual business units
Old pay structures, incentive schemes and progression systems are abandoned as too costly and too complex to administer
Broad banded pay structure is introduced to match a delayered organization
Benefit policy is revised, eliminating all superfluous items and allowances in favor of ‘clean cash’ and move towards flexible benefits
Competence-based or Team-based pay is introduced, and performance awards are paid only for demonstrable added value

Reward strategy can be achieved through:

Strong internal equity based on effective job evaluation;
Proper market alignment through effective comparison and positioning against reliable external market data on pay and benefits;
Structuring the “package” to get the right balance between, basic salary, bonus, allowances and benefits; AND
Developing an effective link between remuneration and job performance.

Policy setting and costing ‘Best Practice’ approach:

Determine the relevant markets for comparison
Establish the desired ‘market position’
Compare your data to the market
Calculate and test alternatives
Select the ‘best’ alternative

Positioning against the market depends on:

Competitive practice
Affordability
Business economics
Culture

Reward Audit

Answer and score the questions for your organization.

Score: A=12 B=8 C=4 D=0

Exhibit 3: Organization Reward Audit

Emotional Reward is more than ‘Just Pay’

We need to remember that reward has an ‘emotional dimension’

Tangibles
• physical environment • sustainability of work • work facilities • security

Quality of Work
• perception of the value of work • achievement • challenge • recognition • work interest

Lifestyle
• social environment • life-style balance • caring environment

Work Style
• working relationships • risk sharing • freedom & autonomy • pace of work

Building for the Future
• career advancement • learning & development • performance improvement & feedback

Exhibit 4: Emotional Reward

The 6 Guiding Principles

1. Think strategically about reward

Consider how to best position your organization relative to the competition
Be clear that ‘internal equity’ and ‘external competitiveness’ are key drivers
Communicate, communicate and then communicate some more

2. Invest heavily in a ‘Pay for Performance’ culture

Ensure performance management works - clear targets, well planned, continuous management, fair review, no surprises
Be aggressive on incentive payments and ensure you are ‘sharing in success’

3. Check the market and be transparent on findings

Rumors always ‘run wide’ of the market

4. Policies, Procedures and Guidelines should eliminate unfair practices

Be clear on how to position and move through the grade structure
Are there times when the job grade could be different from the personal grade?
Is the criteria for the annual review transparent?

5. Never under-estimate the power of recognition

Payment is never enough, ensure that staff know their contribution is being measured and when appropriate is appreciated (Awards; Presentations; Articles; Certificates; - they all help)

6. Accept that your best performing staff will always want more pay