We’ve had clients say to us, “The younger generation doesn’t understand the value of our benefits package and we’re losing them to slightly higher base salary offers. We know the competition’s total package is not as strong as ours!”
We have also heard, “They’re leaving for similar pay, but they had a flexible schedule with us and will miss out on the training opportunities offered here!”
One of the frequent challenges we see is the opportunity for organizations to better communicate their total rewards package during recruitment and performance reviews so that employees have a clearer picture of how the organization values their time, effort, and work contributions.
WorldatWork’s Total Rewards Model is comprised of five elements:
- Compensation
- Benefits
- Recognition
- Development
- Well-being
Let's take a look at each element of the Total Rewards model.
Compensation
This element encompasses the total cash compensation provided by an employer, including both fixed and variable pay. How an organization chooses to pay is driven by how the organization wants to compare to the market, also known as its desired market reference point. Does the organization want to lag, meet, or lead the market, and is their desired market reference point the same for all roles? What is their target market? Is their philosophy to pay like organizations they compete with for talent or for who they are (their industry, employee size, and annual revenue)?
Market data is reported at different percentile levels to reflect the different pay approaches in the market.
- Companies that pay at the 25th percentile lag the market and are many times aligned to charitable nonprofits and organizations experiencing downturns.
- Companies that pay at the 50th percentile are considered market competitive.
- Companies that pay at the 75th percentile lead the market and are many times aligned to technical or high growth industries.
In addition to determining the market reference point, an organization should also consider the mix of cash compensation and whether the organization prefers to reward with higher base salaries or have more cash at risk (variable pay).
Benefits
This element encompasses the programs that provide security for employees and their families. Some employee benefits are required by law and many others an employer can choose to provide. Offerings like health and welfare, life insurance, vacation, sick leave, and retirement plans provide employers great flexibility in designing their total rewards offering.
Benefits programs are often benchmarked against similarly situated organizations to understand whether the individual components in the benefits package are above, meet or below the market.
Organizations should make decisions on the desired mix between total cash compensation and benefits. A common mix is 70% total cash and 30% benefits, but that can look different in the public versus private sector.
Organizations that are communicating their total rewards programs to employees, often stop here and do not include the other three elements which provide a holistic view of the financial and nonfinancial value in the employment package.
Recognition
This element encompasses the programs that celebrate the workforce contributions while aligning and strengthening organizational culture. Many studies show that one of the things employees value most is being acknowledged for their contributions, for both exceeding expected performance levels and for going beyond core job duties.
Employee recognition programs can take many forms, for example, team lunches, gifts on milestone anniversaries, granting an extra personal day during birth months, or providing gift cards for contributing to the organization beyond expected duties. It is a great and inexpensive way for organizations to reinforce their core values, by recognizing employees who embody the company’s culture.
Development
This element encompasses the opportunities to advance employee skills, competencies, responsibilities, and contributions. Development programs should align with the organization’s strategic goals. For example, if an organization created a product and found it difficult to sell, they may pivot to providing that product as a service, requiring a different set of skills and competencies in their workforce. The HR team may consider implementing training that educates staff on the new service offering and develops soft skills, for example, presentation and communication skills.
Studies show that development opportunities are particularly important for the entry and core levels of the workforce. This population is thirsty for knowledge and for the opportunity to increase their level of responsibility and advance in their career.
Well-being
This element encompasses the programs focused on the success of employees inside and outside of work. There are many benefits to incorporating a well-being program into your organization. They have been found to improve employees’ health behaviors, reduce health care costs, improve workforce productivity, decrease absenteeism, and improve recruitment and retention efforts.
Well-being programs can take many forms. Most recognized are gym memberships or on-site fitness centers, but they may also include employee assistance programs, lunch and snack programs, and wellness challenges, for example, a pedometer steps challenge. There are many ways to be creative in developing a strategic well-being program that supports the organization’s culture.
In today’s environment, arguably more so than ever before, employees want to work for organizations that show they care about their individual health and wellness. Organizations that go beyond reducing risk and make efforts in providing tools and support in adopting and maintaining healthy behaviors for employees will have an attractive piece to their total rewards package.
In Conclusion
There are numerous ways to address the challenge of communicating an organization’s total rewards package head-on. As employees have increased access to crowdsourced data and information through forums, like Glassdoor, it is easier for employees to know what their peers are being offered at other organizations.
Fair and transparent pay practices are more important today than ever before and total rewards are a top priority for many executive leaders. Enabling managers to communicate effectively will better support your organization's culture, increase loyalty, improve morale, and the employer brand.
6 Takeaways to Consider for Your Next Steps:
- Have strategic conversations about your total rewards philosophy and consider how the organization will value employees within each element.
- Develop a strategy and document the organization’s total rewards philosophy.
- Develop salary administration guidelines to ensure fair and consistent pay practices.
- Train managers on how to communicate the total rewards strategy, providing clear guidance on the messaging and timing of employee communications.
- Provide employees with total rewards statements.
- Survey employees to understand what they value in total rewards ensuring their voice is heard and the organization spends money on what is going to drive increased levels of satisfaction, retention, and productivity.
