Human resources can be an incredibly complex area for all types of organizations. The interactions between employees and their employers constitute some of the most complex relationships we engage in on a daily basis.
The concepts of total rewards and compensation are essential tools for the modern HR professional. That’s because this approach takes a more holistic and realistic view of how employees are valued within their organizations. This approach can have major benefits for employers of any size, but particularly for growing organizations that need to prioritize retention.
Developing sustainable compensation and HR strategies can lay a strong foundation for organizational growth, and taking a total rewards approach is the best way to get there.
What is a total rewards approach to compensation?
Total rewards involves accounting for all the ways in which employees are compensated, both directly and indirectly. These all contribute to how employees feel about their work and how they’re valued at the employer. It offers a more dynamic and culture-wide way of understanding the relationships at play in a workplace, and it gives employers a fuller toolkit to work with when it’s time to fine-tune compensation strategies.
The separate elements that typically constitute a total rewards approach to compensation are:
- Direct compensation, including incentive-based and variable compensation models.
- Benefits, like insurance coverage, educational stipends, savings plans, and paid time off.
- Performance management styles and strategies in use.
- Recognition of accomplishments that drive organizational success.
- Work-life balance and the overarching culture of the workplace.
Taken together, these pieces all express how your organization values its employees, not simply how much it values them with direct compensation and benefits. A big-picture understanding of how these elements work together will ideally improve your ability to design a total rewards strategy that encourages teamwork and long-term retention.
Why does it matter?
The total rewards that an organization offers its employees, including direct compensation, indirect compensation, and elements of its culture, all affect how that organization is able to attract, motivate, and retain its talent. There are two main benefits to taking a total rewards approach versus a simpler, more straightforward direct compensation approach:
- A total rewards approach to compensation more fully defines the relationships between organizational performance and employee satisfaction, creating fewer gray areas than only analyzing salaries and benefits would produce.
- Identifying and understanding all the elements in your organization that produce and express value for employees refines your HR team’s ability to develop more effective compensation strategies and pinpoint areas for improvement.
For many employers, particularly young start-ups and growing organizations, these benefits can make all the difference early on. Retention is an essential part of success for young organizations, and starting with a professional, properly-scaled compensation strategy in place goes a long way to fuel sustainable growth.
How do you develop a total rewards strategy?
Developing a total rewards strategy tailored to your organization starts with identifying all the elements listed in the first section. Examine each of them and think about how your existing compensation and employee engagement strategies take them into account.
For many organizations, a consultant is often the best bet for developing a comprehensive total rewards strategy. If your organization could use more thorough guidance, we’ve put together a list of top compensation consulting firms that specialize in different sectors and business situations to help you get started.
Even without a consultant’s help, your organization can still implement new strategies that take total rewards into account. In particular, start-ups developing their first HR policies should incorporate total rewards into how they conceptualize compensation more generally.
Start by creating a total compensation statement for employees. This should clearly outline each employee’s direct and indirect compensation, and it’s an effective approach for boosting transparency. Sample total compensation statements also come in handy during the recruitment process.
One of the best ways to create a total compensation statement is through compensation benchmarking tools. These tools help you to stay within the compensation range of your competitors or above them. This way, you can retain your talents effectively and grow your organization.
Total rewards compensation is an essential concept for organizations of all sizes today. Getting a firm grip on the total rewards approach is especially useful for young and growing employers because it helps to cement dynamic and sustainable HR techniques into their cultures from an early stage.
About the Author
Cassandra Carver is an HR Assistant at Astron Solutions, putting her HR expertise to work on a variety of client engagements. Cassandra supports the firm in opinion survey & exit interview analysis, by processing responses and developing reports based on the collected data.