Innovative Total Rewards Programs

Rewards at Work

As competition for quality workers heats up, companies are seeking new and innovative ways to reward and motivate their workers. Rewards can help with attraction and retention of good people. Most companies have similar rewards, as many types of benefits are considered to be standard -- things like health insurance, time off, dental and others are considered the norm in any position worth having at a company worth working for. Companies have to have such benefits in order to compete for the best people, and companies that do not offer a comprehensive benefits program may finding themselves wanting for talent. Thus, there has been significant innovation in rewards packages in recent years, as companies have sought to gain competitive advantage over their rivals in attracting talent. This paper will answer several critical questions with regards to the ways that companies in the 21st century are trying to attract and retain talent.

Innovations

An organization's compensation strategy plays a critical role in acquiring and maintaining the talent that it needs in order to meet its strategic objectives. Compensation of all types costs money, so there is going to be a cost-benefit analysis on compensation plans, but there are basically two main ways to look at compensation strategy. The first is that there is a baseline of compensation that an organization has to offer in order to attract competent people. This usually takes the form of "normal" compensation packages, a combination of pay, time off and insurance, offered either in a traditional "take it or leave it" sort of manner, or in a buffet style benefits plan. In either case, companies that want workers with education, experience and any sort of track record of success will need to offer these basic benefits.

The next level of strategic compensation management is that companies that wish to attract top talent need to offer superior benefits. This does not mean things like letting them use the Internet -- which is pretty much equivalent to letting them use the bathroom without having to raise their hand in class or obtain a hall pass -- it means equity-based compensation, and benefits that are geared to maximizing creativity and productivity. These are the sort of benefits that have been popularized to some extent by their success in the tech sector, where competition for talent is intense. In other fields, competition for talent may not be as intense, but companies have started to become more creative in what they offer their employees in order to affect that actual work environment. Normally, benefits focus on what the employee takes home from the job at the end of the day -- a pension, some health care, braces for their son, glasses for their daughter. The modern, innovative approach to benefits has started to focus more on what the company can offer employees while on the job to improve their motivation and performance. Work environment and career development have become, along with pay and benefits, an integral part of total compensation in the 21st century (Kaplan, 2005).

This has come about because companies have started to realize that there is more than one type of person in the world, and that sometimes different people want different things from their employment. Some people are focused more on career development, some people just want to work in a location that they like, and others are focused on self-actualization than anything else. The idea that there are different needs is old, going back at least as far as Maslow, but companies are starting to build this idea into their total compensation packages. The most important thing is that companies need to align their total compensation packages, and all innovations contained within, to what type of worker they hope to attract.

The innovations therefore have to have a specific purpose. Tech firms offer their unique benefits in order to entice younger workers to spend more time at the office, which is necessary in work that requires long hours for projects -- give people a place to nap or blow off steam, and some food, and they can give you a lot more hours when it is needed to get a project on deadline. In other instances, workers are attracted by the opportunity to work and live in a major city, or to work for a company that is rapidly growing and thus will give them an opportunity to build their career along with it.

2. Aligning benefits with jobs

There are different rewards preference profiles for different types of workers, and a company that wishes to attract a specific type of worker will need to align the rewards with that worker's preferences (Medcof & Rumpel, 2007). High technology workers, for example, have different rewards in their workplaces not just because the job is different but because their needs are different as well. The same can be said of many other worker categories -- where they have different rewards preferences, those preferences need to be met.

The basic process for a company is to identify its strategic goals, and what type of worker will be needed to perform the tasks to bring the company to those goals. The next step is to understand what rewards that class of worker is seeking. The competitive marketplace has to be understood as well -- workers always want a lot of rewards but whether the company has to give them said rewards is partially dependent on the market for that type of worker. The company can then, once it understands these things, develop its total rewards package for these types of workers, to attract and retain them.

The buffet benefits concept was one innovation a couple of decades ago that sought to tailor the benefits offered to the needs of each individual worker, allowing them to choose from a variety of options, each with a specific value, and the employee having the total value of their rewards capped. Some of the more innovative rewards today go beyond this approach, wherein the company will offer things outside of the traditional rewards framework to certain classes of employees. This still needs to be done in a structured manner -- why some employees get a nap time and others do not, for example -- but the company does need to understand the needs of each type of employee in order to meet those needs in a creative way (Kwon & Hein, 2013). The idea, however, is that creativity in rewards means moving away from models that treat all employees the same, and trying to get a better fit between the needs of employees and what is offered to them in terms of benefits.

Innovative benefits therefore can and should be tied to different jobs. Because they are inherently rooted in the development and on-the-job aspects of rewards, it is easier to tie them directly to the job, and it is more beneficial to do so as well. Employees in specific jobs will trend towards similarities in what they want from their jobs, and this creates opportunities for such alignment. The harder to find a specific type of worker is, the better it will be for the company to tie the benefits with the job. Not only should the benefits be tied to the position, but they can also be tied to performance metrics, which may create greater equity throughout the organization, because certain benefits can be tied to specific elements of a job. A tech worker asked to work 80 hours in a week, for example, might receive a much different set of benefits that another type of worker that does not have the same workload -- tying things like free meals or gym memberships to metrics that are inclusive of just the specific category of worker is important.

Innovative benefits vs. Equity-based compensation

The primary objective of equity-based compensation is to align the activities of the employee with those of the organization. Basically, it is bribing the employee to work for the company rather than himself or herself. As such, equity-based compensation mostly only works in theory. At higher levels, this form of compensation, the executives are only incentivized with respect to stock prices, or more specifically to moving the stock price within the time frame of the options that they have received, or the shares. The shares are a better option because it promotes long-term growth, but again vesting periods make a difference. For equity-based compensation, the short-term gains in the stock market from certain activities may not be in the best interests of anybody except the shareholders, so there is something of a disconnect at the executive level. Executives are oriented to seeing their companies strictly as investment vehicles, rather than complex systems with multiple different objectives.

At lower levels, equity-based compensation, such as share purchase plans, can be more effective. Lower-level employees are more likely to take a long-term view of their participation in the organization, so shares can help to retain employees, and ensure that they see themselves as working for the organization as a whole, rather than working just to earn a paycheck. The long-run success of the organization therefore becomes a motivation. The difference at the lower levels from the C-suite is that at the lower levels the workers can only work hard; they have no capacity to affect the overall strategy of the company. Thus, they are incentivized to work towards building the company and performing to the best of their abilities, which is different from an executive who might engage in a merger or other activity to provide a boost to the share price, regardless of whether such an action is in the long-run best interests of the company.

So at lower levels, equity-based compensation is more effective, and thus is can be used in conjunction with innovative benefits. But as equity-based compensation tends to be long-run in nature at the lower levels of the organization -- programmers and middle managers usually receive shares, not options -- it is a long-term motivator. Innovative rewards tend to motivate behavior more in the short-run, because they are tangible, and employees can experience them on a daily basis. They are more directly related to daily and weekly tasks, which means that equity-based compensation is a long run complement to innovative rewards, rather than a substitute.

Innovation in a Total Rewards Program

There are a few different approaches to integrating innovation into a total rewards program. First, companies have to recognize that some employees are inherently more innovative than others -- they are more creative, and while that creativity must be fostered, it is also necessary to simply provide an environment in which creative people wish to work, in order to attract and retain them. Having the right people is essential to the success of any task, and innovation is no different in this regard.

Human resources practices have been found to influence innovation in organizations (Sanders et al., 2010). The company needs to create systems that allow for things like intrapreneurship, for example, in order to influence the amount of innovative behavior in the organization. This fits within the "development" aspect of a total rewards program. Thus, the total rewards program need not recognize innovation in the benefits or even the compensation program, but it has to in the work environment part and most certainly in the development part. By fostering an environment in which people not only innovate but are rewarded with the opportunity to follow up on their innovations, and to reap some of the rewards of their own work in terms of career advancement, an organization is going to foster a higher degree of innovation (Alpkan et al., 2001). It is important to remember that as with any other aspect of total rewards, innovation programs will be more effective when they link the actions with the rewards directly. So if someone develops a new product, giving them the opportunity to follow up on that work bringing that product to market, or receiving a portion of sales, is much better incentive than giving someone a token bonus a new million-dollar idea. The greater the link between the innovation and the reward within the total rewards system, the more effective that system is likely to be.

Employee-Based Suggestion Programs

An employee-based suggestion program is valuable as an idea-generation tool, and thus can represent an important part of developing a total rewards program. Essentially, such a program allows employees to tell the company what they value, and this might be entirely different things from what the company thought. As an information-gathering process, suggestion programs can be highly effective. To take the suggestions and convert them to meaningful action requires the following steps.