What is a Total Rewards Strategy? A Practical Guide

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What is a Total Rewards Strategy? A Practical Guide

An effective total rewards strategy helps encourage employees to work more productively, stay with the company for longer, and attract new talent. In this article, we will review Maslow’s hierarchy of needs, how it corresponds to a total rewards strategy, discuss the components of total rewards, and how you can create a total rewards strategy for your organization.

Contents
What is a total rewards strategy?
The five components of total rewards
Why does your organization need a total rewards strategy?
How do you create a total rewards strategy?

What is a total rewards strategy?

A total rewards strategy is a coordinated effort driven by an organization’s overall business strategy to develop a workforce motivated towards excellence and growing with the organization through an effective and inclusive rewards package. This package is a combination of all the benefits, perks, incentives, guidelines, processes, programs, and other types of rewards that an employer offers to its workers.

In a word, an effective total rewards strategy enables organizations to improve business performance and achieve desired results through building an engaged, satisfied workforce.

It is typically the HR department or a dedicated compensation & benefits team that implements a total rewards strategy.

Maslow’s hierarchy of needs

A solid total rewards strategy satisfies the needs identified in Maslow’s hierarchy of needs. This concept refers to the idea that people are motivated by five fundamental needs.

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Abraham Maslow was an American psychologist who developed this hierarchy of needs to describe human motivation. There are different interpretations of this model and how these needs progress or interact with each other. However, for the purpose of this article, we believe all these needs are critical and should be met for most people to be healthy and fulfilled in their family, social networks, and the workplace. Obviously, how these needs are manifested and met in different relational contexts will differ.

Maslow's Hierarchy of Needs

How do different components of total rewards satisfy different needs in Maslow’s pyramid? Let’s have a look.

The five components of total rewards

WorldatWork identifies these five elements that make up Total Rewards. The correlation to Maslow’s hierarchy of needs is italicized. The five Total Rewards components are:

  • Compensation – This refers to pay (base and variable) that employers provide to employees in exchange for skills applied, qualifications earned, time given, efforts exerted, and targets met towards achieving an organization’s mission and strategic objectives. Compensation empowers employees to attend to their physiological needs like purchasing food, clothing, and securing a home. This includes different types of compensation, such as base pay, variable pay, stock options, and cash bonuses.
  • Benefits – These are packages provided to employees to enhance their physical, emotional, and familial safety. The most basic types of employee benefits are health, dental, and vision plans, leave plans, life and disability insurance, and retirement plans. 
  • Wellbeing – Employee wellbeing has become more critical for employers to attract and retain employees. More and more people recognize the need for holistic wellbeing to be satisfied, healthy, and motivated in life. As a result, employees are expecting organizational cultures to promote employee wellbeing. Organizational cultures that value and promote employee wellbeing may be characterized by:
    • Employee assistance programs – These provide additional assistance to employees who may be experiencing challenges in their relationships, finances, or mental health.
    • Employee resource groups – Such groups provide a social hub for employees who share similar backgrounds or interests to form friendships and professional networks within the organization.
    • Diversity, Equity, Inclusion & Belonging (DEIB) programs – These have blossomed over the past few years in many organizations to review and address how equitable and inclusive organizations are for diverse employee populations.
    • Company-sponsored events – These events allow a cross-section of employees to socialize together and sometimes with their families (like a ‘Family Day’) to build friendships within and to foster belonging to the organization.
    • Opportunities to volunteer – Giving back to those in need also contributes to employee wellbeing.
    • Remote work and flexible work schedules – These are more in demand due to the pandemic and increased recognition of the importance of family. Such arrangements also provide a form of safety for family life and relationships.
  • Recognition – For some employees, compensation, benefits, and wellbeing are insufficient to keep them motivated toward excellence in performance and loyalty. People want their achievements to be recognized. Recognition programs can take the form of:
    • Awards – Spot awards, tenure awards, performance awards.
    • Promotions – Ability to move up the corporate ladder to gain more responsibility and visibility to leadership.
    • Verbal appreciation in the presence of their peers or a simple ‘thank you’.

      While all employees may not need these types of recognition, all employees need respect in the workplace. Respect is a form of recognition that all employees need to maintain a sense of dignity and psychological safety in the workplace.
  • Development – Employers who invest in employee development programs are investing in the self-actualization of their employees. We are all endowed with gifts and talents. Through education, training, mentorship programs, and relevant work experience, these gifts and talents equip employees to become more competent in their roles. In other words, these career development initiatives enable employees to advance within the organization to realize their full potential.
Total Rewards Strategy

Why does your organization need a total rewards strategy?

There are some obvious reasons why organizations should have a strong total rewards strategy. The following are some you should consider:

  • Attracting top talent – A total rewards strategy that can potentially satisfy all the employee needs will appeal to a broad demographic of prospective employees. This helps an organization attract a diverse candidate base and makes the recruitment of new workers faster.
  • Employee satisfaction and employee engagement – There is a strong potential for high employee satisfaction as employees evolve and transition from one stage of life to another, yet still have their needs met through an effective total rewards program. Also, when employees feel they’re rewarded fairly, it also keeps them engaged.
  • Employee retention – An effective total rewards strategy stimulates employee wellbeing, engagement, motivation, all of which are key for retaining employees.
  • Competitiveness – A total rewards strategy makes organizations more competitive within their industry by incentivizing excellence in performance. And as we’ve mentioned above, the organization can also successfully compete for talent and become the employer of choice in their area of business.
  • Improved business performance – When your organization can attract and retain talented employees, it is likely to achieve the organizational goals and outperform its peers. To put it another way, engaged, high-performing employees often result in top-performing companies.

How do you create a total rewards strategy?

1. Assess what you already have in place

When creating your total rewards strategy, you’re likely not starting from scratch. You can conduct a rewards audit to find out where you currently stand. What is your current compensation package like? What’s your compensation philosophy? How are you doing with the other components of total rewards? You may find that some components are stronger than others.

This evaluation will give you an idea of what you should prioritize and focus on.

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2. Gather employee feedback

What do your employees think about your current rewards, and what are they missing? You can do a survey or organize an employee focus group to find out. Also, you can gather stay- and exit interview data related to rewards.

Total Rewards Strategy Employee Feedback
Asking your employees what they would like to add to their rewards package is an excellent way to understand your workforce’s preferences.

3. Include the leadership

Share the results of the audit and employee feedback with the organization leadership. Explain the potential challenges of not having a strong total rewards strategy, such as not being able to attract and retain talent. You will need their buy-in and insight into organizational strategy and company goals, but also gain their approval of your rewards budget.

4. Identify your goals and priorities

What do you want to achieve with your updated total rewards strategy? And how does this support your specific business goals? Asking these and similar questions will help you identify what to focus on in building your strategy.

For instance, you might have identified a problem with engagement across your organization, which causes increased employee turnover. People are not engaged, as they feel that their contributions aren’t recognized and appreciated, and they end up leaving. Then, your total rewards strategy can put an extra focus on the recognition element.

5. Align the strategy with your values and culture

Your total rewards strategy should be a reflection of your organizational values and culture.

For example, at AIHR, one of our core values is “hunger to grow”. So in our case, our total rewards strategy also puts emphasis on professional and personal development opportunities.

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6. Make total rewards balanced, flexible, inclusive, and fair

It is great if your total rewards strategy focuses extensively on recognition. However, your employees need to pay their bills, too.

When creating your strategy, make sure that the elements are balanced. Also, see what options there are to personalize and customize the rewards. While some of your employees might appreciate paid gym membership, others might value lunch allowance.

And, of course, you need to reward your employees equitably and fairly.

7. Keep up with the trends

This doesn’t mean that you should implement every hip perk you’ve heard about. However, you do need to pay attention to what’s happening in the world, your industry, and how it affects rewards. Think about the pandemic and its effect on mental health, which employers have started to put more and more focus on.

8. Communicate total rewards to employees

While your employees most likely understand your compensation & benefits package, they might still need a refresher. And, of course, they need to understand the other elements of rewards at your organization.

It is important to communicate your total rewards package in a transparent, easy-to-understand way. For example, you can gather frequently asked questions and provide answers on the company’s internal wiki. Additionally, you can organize regular Q&A sessions where your employees have a chance to ask everything they want to know about rewards.

9. Track the cost and impact

You need to ensure that your total rewards strategy has a good ROI over the long term. Track what you’re spending and what impact it creates (e.g., an uplift in eNPS). That way, you can adjust your strategy as you go and also effectively manage your HR budget.

To summarize

Building a total rewards strategy is complex but worth the investment.

In the first place, you need to consider what motivates all human beings as described by Maslow’s hierarchy of needs as the psyche of your employees. The components of the total rewards program and how your strategy is built correspond to these needs.

Organizations have the opportunity to be creative to design or strengthen their total rewards strategy with an understanding of what motivates their employees, their current total rewards state, strategic objectives, and budget.

The advantages of a total rewards strategy make the organization more competitive and strengthen the loyalty of employees. You need to consider the interest of both the employees and the organization. Finding the right balance is key to achieving your organization’s goals.

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