Total Rewards Management - Introduction PDF

Rewards Continue to Evolve Throughout history, employers have been challenged with attracting, motivating, engaging and retaining employees. From the simplest barter systems of centuries past to the current complex incentive formulas of today, the organizational premise has been the same: provide p...

Rewards Continue to Evolve Throughout history, employers have been challenged with attracting, motivating, engaging and retaining employees. From the simplest barter systems of centuries past to the current complex incentive formulas of today, the organizational premise has been the same: provide productivity and results to an enterprise, and the enterprise will provide its employees with something of value. This is referred to as the employee value proposition (EVP). Throughout the past two decades, the profession has continued to mature. Increasingly, it has become clear that the battle for talent involves much more than highly effective, strategically designed compensation and benefits programs. While these programs remain critical, the most successful companies have realized that they must take a total rewards approach, emphasizing attraction, motivation, engagement and retention. They must deploy all of the elements of total rewards -- compensation, benefits, well-being effectiveness, recognition, and development -- to their strategic advantage. The Total Rewards Model The total rewards model provides a framework for designing, implementing and assessing the rewards packages offered throughout the organization. Organizations must consider various influences, internal and external, that help shape an organization's human resources strategy. Understanding these helps ensure alignment in the development of the total rewards strategy. HR strategy is the organization's overall plan for attraction, motivation, engagement and retention of employees. The total rewards strategy considers the HR strategy and uses it to guide the design of programs for each of the five elements of total rewards. When effectively designed and successfully perceived as valuable, the strategy yields productive, inspired, and committed employees. Drivers of Total Rewards Strategy What goes into deciding what the total rewards strategy should look like? Organizations deploy rewards as the strategic tool to achieve business objectives. HR Strategy informs the Total Rewards strategy, which plays a leading role in the employee experience. Initiatives must be completely woven into the enterprise's HR strategy, considering the human capital and societal influences that affect program design and strategy. There are many internal and external influences that inform the design and implementation of the HR Strategy. - Internal factors encompass business strategy, culture, workforce, inclusion, and leadership - External influences include social/cultural norms, the regulatory environment, advancements in AI and technology, and competitive (product and labor) markets A deep understanding of these factors provides the context required to build effective programs that attract and retain high-performing employees and drive business outcomes. This strategy determines what the total rewards mix for the organization will be. Internal Influences An organizations internal environment influences the total rewards strategy. When determining the total rewards strategy, organizations need to consider the internal influences. - Strategy - Total Rewards strategies are a mechanism to make a strong business strategy come to life. Whether the goal is operational excellence, product/ service leadership, or customer engagement -- rewards programs help communicate expectations, align efforts, and motivate the behaviors required to deliver results. - Culture - Simply stated, organizational culture refers to a set of shared values and beliefs that form over time as people interact and work together. It encompasses an organization's vision, values, norms, and ultimately influences workforce experiences and outcomes. Total Rewards offerings can help transform and re-enforce desired cultural norms, and significantly influence how work is performed and recognized in the organization. - The Workforce - Rewards must be tailored to meet the needs of an increasingly diverse pool of employees that is defined by geopolitical trends, tech advances and talent demographics, including today's up-to-five-generation workforce. Savvy Total Rewards pros see this as an opportunity to attract the highest performers and "best" the competition. - Inclusion - In these hyper-accelerated times, diversity and inclusion strategies provide organizations with a competitive advantage in talent attraction and workforce productivity. Total Rewards professionals leaders can help organizations achieve greater diversity while building an inclusive culture by developing clear approaches for pay equity and transparency, career development, inclusive benefits and more. - Leadership - Total Rewards programs are only effective when leaders play an active role to promote understanding and appreciation of the rewards programs. Total Rewards practitioners must work with organizational leaders to ensure that Total Rewards initiatives align with business goals and that they are well-understood, used and appreciated by workers for maximum impact. Business strategy is the broad framework of principles and approaches that guide the day-to-day decisions affecting the business. It is derived from the vision and mission of an organization. Understanding the importance of the relationship between vision, mission and the resulting business strategy will assist the human resources professional in becoming a strategic partner. - Corporate vision -- a statement about what the organization wants to become. It drives the direction of an organization. - Corporate mission -- a precise description of what the organization does, its reason for existence or its purpose for being. - Business strategy -- a company's broad plan for competitively positioning its products or services with the intent to accomplish or support the company's mission. Business Strategy Examples The business strategy ensures that the business supports the organization's mission, goals and objectives. Although organizations must employ many strategies to a certain degree, organizations will place primary focus on one of three strategies. Each strategy requires different actions or behaviors by employees. These represent the organization's business objectives. - Operational excellence -- primarily a price/cost-based strategy - This strategy often includes a combination of price, quality, dependability and ease of purchase that competitors cannot match. The corporate culture typically strives to minimize waste and reward efficiency. - Product/service leadership -- primarily an innovation-based strategy - This strategy focuses on innovation, product development and market exploitation. The corporate culture encourages imagination and a mind-set driven by the prospect of creating the future. - Organizations that use this strategy offer products and services that expand performance boundaries (the best products), leapfrog/replace technologies/products, create more/better ideas and commercialize them faster than their competitors. - Customer intimacy -- primarily a solutions-based strategy - This strategy focuses on creating results for carefully selected customers (making them successful). The corporate culture encourages deep and lasting relationships with customers. - Organizations that use this strategy build bonds with targeted customers; they meet or exceed customer needs to build customer loyalty Business Life Cycle Affects Strategy Business life cycle is the progression of steps an organization passes through from its creation to its decline. An organization's focus will change as it moves through the various phases of the life cycle. Where an organization is in its life cycle can have a significant influence on total rewards design as organizations create programs that are best suited to meet organizational objectives. There are four stages of a business life cycle: - Start-up -- The organization is new with little or no formal policies or procedures. The organization's focus is on obtaining capital, marketing products or services, initial sales growth and cash conservation. - Growth -- In this stage, the organization is highly focused on growing sales, increasing distribution capability and determining how to efficiently produce products or services to meet growing demand. Growth typically generates the need to begin standardizing procedures through policy creation. - Mature -- The mature stage is characterized by a focus on maintaining/increasing market share, improving productivity and otherwise reducing cost of sales. Improvements to products are more evolutionary than revolutionary. The organization typically has higher levels of bureaucracy and greater amounts of cash on hand than at other stages. - Decline -- At this point, the organization's revenues are declining. It must decide whether to reinvest in current products, create new products or maximize profits with current products as long as possible. Organizational culture is often difficult to describe and because of this, its impact is also difficult to understand. Culture determines how and why a company operates in the way it does. Typically, it includes a set of often unspoken expectations, behavioral norms and performance standards to which the organization has become accustomed. - Subject to both internal and external influences - Greatly influenced by organization's leadership External Influences Successful organizations understand that total rewards must be designed and administered in the context of not only an organization's internal environment, but also influences external to the organization. These external influences often are out of the direct control of the organization. - Social Norms - TR professionals must have a grasp of the customs, social mores and drivers of the diverse makeup and expectations of the workforce to effectively tailor programs for maximum efficacy. - Regulatory - The regulatory and legal environment can vary widely and change quickly, affecting the design and implementation of total rewards in various ways. - Programs should be assessed to ensure they can be legally applied in all locations and at all levels. This may require adaptation or even alternative programs to ensure compliance. - Artificial Intelligence and Technology - Leveraging data and technology allows TR professionals to identify retention risks and program opportunities. - Product market - The product market is continuously evolving. With more companies offering services as their product, various work arrangements have emerged, such as the gig economy. - Labor market - TR professionals must understand labor market trends and movements, including supply and demand of key talent, to balance the cost of attracting the necessary talent at a price that is affordable and sustainable. Elements of Total Rewards Strategy The Total Rewards Model encompasses five components, each of which includes programs, practices, and nuanced dimensions that collectively define an organization's strategy to build a productive, inspired and committed workforce. - Compensation -- Pay provided by an employer to workers in exchange for services such as time, effort and talent. This includes both fixed and variable pay tied to overall contributions. - Well-being -- The state of a workforce that is productive, comfortable, happy, and healthy, considering physical, emotional/ mental, financial and environmental factors. Total Rewards professionals influence this state through organizational strategic influence and building programs that support workforce success inside and outside of work - Benefits -- Programs focused on health and welfare, income protection, financial preparedness, retirement and time off including leaves of absence, aimed to provide holistic well-being and security for the workforce and their families. - Development -- Encompasses the rewards and opportunities that employers offer their workers to advance their skills, competencies, responsibilities and contributions --- in both their short- and long-term careers. - Recognition -- Formal or informal programs that thank, validate, recognize and celebrate workforce contributions while aligning and strengthening organizational culture. These elements represent the tool kit from which an organization chooses to offer and create an employee value proposition (EVP) that results in productive, inspired, committed employees who, in turn, create desired business performance and results. The Total Rewards Strategy Most organizations consider the internal and external drivers to guide the design of programs for each of the five elements of total rewards. TR strategy development is the art of combining these elements into tailored packages to meet the needs of the organization and its employees. In order for the strategy to be successful, employees must perceive monetary and nonmonetary rewards as valuable. - The desired competitive market positioning - For example, many companies target a rewards program targeted at the 50th percentile of a chosen selection of competitors or of a defined peer group. - Competitive positioning may vary by organization level (e.g., executives), functional area (e.g., sales) or geographic location. - The rewards programs that are offered and the optimal mix for each employee group - With dozens of rewards programs available, organization must decide which ones to offer and what the best mix is for different employee groups. - The way each reward program will be earned and allocated - For example, some programs are offered to all employees (e.g., vacation) while others are offered only to certain employee populations (e.g., incentive plans) - Additionally, some organizations focus on collective or team performance, while other focus on individual performance, and some combine both. Key Players Involved in Total Rewards Strategy Development - Senior management/board of directors - Senior management typically gives approval to the strategy. The board of directors typically approves officer compensation and may approve broad-based plan design. - Involvement is important for buy-in and ownership. - Human resources leadership - Articulates the HR strategy - HR staff is instrumental in designing and implementing total rewards. - Employees - Employee opinion or engagement surveys may provide guidance in identifying the relative importance of total rewards elements to various employee groups. - A collective bargaining agreement or other employee groups may need to be considered if applicable. - Outside consultants - If outside consultants are used, they work closely with HR to develop the overall strategy and design. The Total Rewards Approach When HR strategy and Total Rewards programs are aligned, the result is productive, committed, and inspired employees who contribute their time, talent and efforts at their highest levels. In turn, this elevates performance of individuals and teams, and enhances the bottom line. The gap between what happens and what is possible is best impacted by thoughtfully designed Total Rewards programs. It is the most direct path to achieving organizational outcomes and ultimately delivering the highest value to your workforce. Using the total rewards approach, the human resources professional strives to find the appropriate mix of total rewards elements that will not only attract, motivate and retain employees, but lead to employee satisfaction and engagement as well. - Attract -- To attract is the ability an organization has to recruit and hire the talent necessary to achieve organizational success. Attraction of an adequate supply of qualified talent is essential for the organization's success and survival. The talent acquisition function can often provide insight into which rewards are most desired and sought after by the targeted talent pool. - Motivate -- To motivate is the ability to cause employees to behave in a way that achieves the highest performance levels. There are two types of motivation: - Intrinsic motivation -- Linked to factors that include an employee's enjoyment of the work, sense of accomplishment, and perception of contribution to a larger purpose. Intrinsic motivation consistently results in higher performance levels. - Extrinsic motivation -- Extrinsic motivation is often associated with rewards that are outside of the individual, which include tangible awards (such as pay) or status (such as job title). - Engage -- Engagement refers to the level of commitment or discretionary effort demonstrated by the employee. The employee typically experiences a positive emotional connection to the organization and its people. - Examples of an engaged employee might be that he or she: - Demonstrates a strong commitment to the organization - Expresses values that align closely with the organization - Promotes the organization and its goals to others, both internally and externally - Retain -- To retain is an organization's ability to keep desired employees who are valued contributors to organizational success. Retention can be achieved by offering rewards that are perceived as desirable and valuable as the employee moves through his or her career. Advantages of a Total Rewards Approach With enhanced attraction, motivation, engagement and retention of employees, an organization may experience positive results such as: - Greater flexibility - Each company, given its own specific challenges, customizes its total rewards programs in unique proportions. This is called the total rewards mix. - By approaching rewards as a "portfolio" to be managed, the organization can have flexibility with different groups and over time. - Increased profitability - A direct link exists between attracting the right talent, having engaged and motivated employees, and long-term business profitability. - Organizations can direct resources to the rewards that employees value the most, scale back or eliminate rewards that aren't as desired, thereby reducing overall costs. - Better place to work - Organizations that take a total rewards approach, and offer rewards that employees value, are often rated as best places to work. - Highly rated companies usually offer desired rewards programs that go beyond just traditional compensation and benefit programs.