Introduction
In recent years, the term ‘compensation’ has evolved to ‘total rewards.’ Total Rewards is a comprehensive approach to employee compensation and benefits, as well as personal and professional development. The concept of total rewards is a result of stiff competition and cost consciousness. Organizations cannot afford to offer cash-incentives each year, hence the need for alternative forms of motivation. Implementing a total rewards program requires an overhaul of the current HR strategies for the organization to reap its benefits. The organization must follow a disciplined process.
Components of Total Rewards
A reward is central to the employer-employee relationship. Many people work to earn a living as they need money for sustenance. How much an employee is paid matters, and it is a huge factor to consider when accepting a job offer. Employee motivation theories suggest other motivators including work environment, work teams, and employee needs. Employers need to use a rich mix of initiatives to motivate employees, retain them and achieve goals. Human resource researchers started exploring the concept of aligning the reward system with the overall organizational strategy in the 1990s and 2000s (Hodor, 2014). Hodor (2014) references a study by De Mattio et al. (1998) and poses the question on how reward practices can be used to reinforce and encourage high levels of individual performance while fostering teamwork among employees.
Delegate your assignment to our experts and they will do the rest.
According to the Society of Human Resource Management (SHRM), total rewards comprises of compensation, benefits and personal growth. The total compensation includes base pay, merit pay, incentives, promotion, and pay increases (Hulkko-Nyman et al., 2012). Employee benefits are varied across organizations, but the primary benefits include health and welfare, paid time-off and retirement options. Lastly, personal growth entails training, career development, and performance management. Alternatively, Bussin & Van Rooy (2014) suggest that the total reward program involves the five components of compensation, benefits, work-life balance, performance and recognition, and development and career opportunities.
From the above description of the components making up total rewards, it is apparent that most organizations have some form of a total rewards program in place. However, there is a need to improve the program to motivate and retain top talent. Highly skilled employees can get better offers from competitors unless the organization finds a way to meet all their needs. Improving the total rewards program requires a redesign of the overall reward strategy, increasing health and wellbeing initiatives, aligning reward with the organizational strategy and differentiating employees (Bussin & Van Rooy, 2014). The HR department must assess employee needs first to determine what to prioritize in a total rewards program. The organization must also communicate the benefits to employees to encourage them to take advantage of them.
Impact on Organization’s Strategic Direction
A total rewards strategy requires a large scale approach to align it with the organization’s strategic direction and operations. As part of the organization’s strategic direction, HR works with top executive and a project team to create a total reward, which is a part of the organization’s strategy. The value of the total rewards program is high. Employees are the most critical resources that determine the organization’s success. Organizations have to find better ways to attract, retain and motivate the top talent who steer the strategic processes in an organization. A study by Bwowe & Marongwe (2018) evaluated the effects of a total rewards program in South African municipalities. The total rewards program is often credited as a crucial factor in attracting and maintaining the best talent and its contribution to employee productivity. The study found out that the municipalities with total rewards programs commanded high employee satisfaction, loyalty, and commitment.
Why Would an Organization want to or not want to implement a Total Rewards Program?
One of the many benefits of the total rewards program is that it reduces labor costs or the costs of turnover. Companies spend a considerable amount of money in the recruitment process. Turnover also comes with indirect costs. Pregnolato et al. (2017) estimate the total costs of losing one employee as 30% of the yearly salary of the employee for hourly employees. Turnover also comes with indirect costs in the form of loss of customers and sales, deficiencies in production, and lower employee morale.
The organization will have to implement the total rewards program because it is here to stay. The total rewards concept has caught on so well with human resource managers everywhere. HR managers are no longer motivated to keep up with traditional notions of compensation that no longer meet the needs of modern employees. The total rewards program is a flexible approach to employee compensation and benefits. The traditional one-size-fits-all approach no longer works with a diverse group of employees. The workforce has reached peak diversity, with employees from different generations, races, ethnicities, social class among other different backgrounds. The organization cannot ignore the fact that various factors motivate these employees. A baby boomer, who is about to retire, wants different benefits packages from a millennial who just started work. All the unique employee needs can only be taken into consideration through a total rewards program.
Like any other organizational program, the total rewards program is costly to the organization. The main problem with the program is budgetary constraints. Proving more health and welfare benefits is expensive to the organization. Other benefits such as education and training are also costly. Small companies have to improvise to fill the budgetary gaps (Pregnolato et al., 2017). Aside from the cost, the organization needs to blend the right mix of benefits. The process of figuring out the right blend of benefits for all the employee groups is quite hard and almost impossible for certain organizations. For example, large organizations with many employees cannot meet all the needs of employees. Some employees will prefer provider organizations while others prefer health maintenance organizations. It is hard to create the right total rewards program with a limited budget, but it is even harder to meet all the needs of employees.
Impact on Employees & the HR system
A total rewards program has the most impact on employees who will reap the benefits in the form of compensation, benefits, work-life balance, performance and recognition, and personal development. Employees will access more benefits in a total rewards program in comparison to a traditional rewards system. Greene (2014) encourages HR to involve employees from the planning to the implementation process. Communicating with employees is important as it promotes buy-in from employees and leaders. Employees will also use the time to give their suggestions on what should be included in the total rewards program. For example, many modern companies have better maternal benefits because they listened to women complain about the challenges of having a family and working.
The program will also affect other aspects of the HR system. According to Lardner (2015), a total rewards program changes the HR processes and strategy. The HR department will align the total rewards strategy with the business strategy. The HR team will be a part of the organizational strategic team to contribute to the creation of strategic objectives. The top management and HR executives will work together to match the rewards system s and practices with organizational goals.
The HR department has been slow to adopt new changes. A study Brown (2014) reported that only 15% of organizations had revised their total rewards plans by 2013. High-performing organizations are quick to change their reward programs because they understand the value. To accomplish a functional total rewards program, HR will adjust its operations, processes, and measures. For example, the total rewards program must comply with the laws and regulations. A total rewards framework is different from a traditional framework, and the HR team will create a new structure that works well with the total rewards system. For example, the old system of promotion according to seniority will be eliminated for a performance-based system that treats all employees with fairness and equity. The HR will also adjust its recruitment, training and performance measures to fit the new rewards program. A total rewards program sufficiently rewards employees for their knowledge, skills, abilities, performances and other individual factors.
The HR team requires additional training and support for the implementation of the total rewards program. The HR team will have new responsibilities that come with the creation and implementation of the new framework. An effective framework aligns, drives, and optimizes. The framework is founded on foundational rewards, performance-based rewards and career, and environmental rewards. The HR team must create a framework that proposes value to employees by focusing on programs that matter to employees and deliver the highest returns.
How to measure whether the Proposed Idea Succeeded?
The proposed idea will only succeed if it is implemented well. A total rewards program is made up of many elements that might affect its successful implementation ( Edmondson, 2010). While the total rewards program has been praised for its benefits, the organization will evaluate the program to identify the specific benefits.
The evaluation metric will measure performance before and after the implementation of the total rewards. An organizational survey has to be conducted before, during and after the implementation of the program to access information that will be used to assess the program. There are many quantifiable metrics for measuring performance including the quality of work, employee goals and objectives, and ROI. There are quantitative measures such as employee morale that will tell whether employees prefer the new system or not. Another quantitative metric is the turnover rate. The parameters must be comprehensive enough to give a whole picture of how the new framework affects the organization. The metrics should focus on key areas where change is necessary to determine whether the organization is achieving its goals for the total rewards program.
What are Real Organizations doing about this?
Real organizations are creating total rewards programs that meet the wide ranges of forces that are shaping the workforce. The advances in technology, the multigenerational workforce, and diversity have made companies re-imagine their rewards system. One company that has put in place a creative total rewards program is Facebook. Facebook’s total rewards include health benefits which are family focused, community engagement, growth, finance, convenience and time away. Facebook’s total rewards program has received praise like the other rewards programs for other tech companies like Microsoft, Yahoo, and Twitter. Modern technology companies are taking a holistic approach to total rewards covering health, family, finance, and convenience. The companies are more involved in the employees’ lives through extensive benefits such as membership to health clubs, support for community causes, working from home among other benefits.
References
Bussin, M., & Van Rooy, D. J. (2014). Total rewards strategy for a multi-generational workforce in a financial institution. SA Journal of Human Resource Management , 12 (1), 1-11.
Brown, D. (2014). The future of reward management: From total reward strategies to smart rewards. Compensation & Benefits Review , 46 (3), 147-151.
Bwowe, P. W., & Marongwe, N. (2018). Implementing a total reward strategy in selected South African municipal organizations. SA Journal of Human Resource Management , 16 (1), 1- 9.
Edmondson, M. (2010). Short case studies and research papers that demonstrate best practice in HR. Strategic HR Review , 9 (5).
Greene, R. J. (2014). The role of employee ownership in the total rewards strategy. Compensation & Benefits Review , 46 (1), 6-9.
Hodor, E. S. (2014). Total Rewards Model in Romanian Companies. Sea: Practical Application of Science , 2 (1).
Hulkko-Nyman, K., Sarti, D., Hakonen, A., & Sweins, C. (2012). Total rewards perceptions and work engagement in elder-care organizations: findings from Finland and Italy. International Studies of Management & Organization , 42 (1), 24-49.
Lardner, S. (2015). Effective reward ensures effective engagement. Strategic HR Review , 14 (4), 131-134.
Pregnolato, M., Bussin, M. H., & Schlechter, A. F. (2017). Total rewards that retain: A study of demographic preferences. SA Journal of Human Resource Management , 15 (1), 1-10.
