For most companies, the combined expense of Total Rewards programs represents the largest single cost in their annual operating budget. Is your company treating this expense as merely the cost of doing business, or is it maximizing its return on that investment by optimizing the design and delivery of programs across the entire Total Rewards portfolio? There are clear ways to ensure you take the latter approach.
Let’s start with how to define Total Rewards. I prefer a broad definition that includes not just compensation and benefits, but career management programs. We can then organize Total Rewards into three categories: foundational, performance-based, and career and environmental rewards. We’ve organized Total Rewards into these categories to develop strategy and plan designs in the context of the way in which employees experience the programs. As companies increasingly move towards the objective of treating employees as consumers, this framework serves to reinforce that point of view.
Foundational rewards are those programs which employees participate in simply by virtue of affiliating with the organization and which do not vary based on performance. This includes programs such as base pay, health and welfare benefits and retirement. Performance-based rewards, on the other hand, vary based on performance at different levels, for example, company, business unit, team and ultimately individual. This includes programs such as merit or promotion increases, annual and long-term incentives and recognition. Career and environmental rewards are typically non-monetary and include programs related to career development, learning, training, formal mentoring programs and flexible work arrangements.
It’s here that we rely on our research, such as our long-running global Talent Management & Rewards Survey for helpful insights. We know that programs across all three categories are among the top drivers of attraction and retention for employees globally. We also know that there are direct lines between Total Rewards programs and the drivers of sustainable engagement. And, we know that both Total Rewards and sustainable engagement play a strong role in employee wellbeing across physical, social and financial dimensions – which, in turn, affects workforce effectiveness and productivity.
Most importantly, though, we have found that employers that “get it right” – i.e., achieve best practice in their Employee Value Proposition (EVP) and the design and delivery of Total Rewards within the EVP – achieve better outcomes across a number of measures of success. These strong positive correlations between these best practices and better outcomes range from fewer attraction and retention challenges, to lower turnover and higher engagement levels, to better financial results.
I know that makes it sound rather easy. The truth is that it’s not – even for employers that currently get it right. At present, changes in existing dynamics require a fresh look a Total Rewards design and delivery. These include fast-changing markets and cost pressures, new generations in the workforce, the need to leverage fast-changing technology, and a heightened need for transparency and communication around Total Rewards design and the basis for individual reward decisions.
With so much as stake, companies cannot afford to manage their Total Reward programs in silos or simply maintain programs that may have been designed with the preferences of baby boomers in mind. Here are five quick questions to see whether your program is in need of some fine-tuning:
- When was the last time your organization undertook a comprehensive review of the effectiveness of its programs?
- Are you confident that your company is maximizing its return on this significant investment?
- Does the current portfolio align with and reinforce your company’s business strategy?
- Does it reinforce your company’s desired culture?
- Do you have effective supporting tools and processes in place to ensure effective delivery?
If these questions make you think you should be taking a look under the hood, we’ve created a Total Rewards check-up that may provide the additional perspective you’re looking for. The check-up is a short quiz which asks questions on the strategy, design and delivery of Total Rewards. You will receive a personalized scorecard via email providing brief feedback on the current state of Total Rewards at your organization as compared to best practice. Given the pace of change and the magnitude of your Total Rewards spend, it’s a time-effective way to gain a better understanding of both the programs that employees’ value and the effectiveness and cost-efficiency in which they are delivered.
Laura Sejen is the Managing Director of Human Capital and Benefits at Willis Towers Watson.