Innovative Employee Rewards and Total Compensation Strategy

Introduction: The Evolving Landscape of Employee Rewards

As competition for quality workers intensifies, companies are seeking new and innovative ways to reward and motivate their employees. Rewards can help with the attraction and retention of good people. Most companies offer similar baseline rewards, as many types of benefits are considered standard — things like health insurance, paid time off, and dental coverage are regarded as the norm in any position worth having at a company worth working for. Companies must offer such benefits in order to compete for the best people, and organizations that do not provide a comprehensive benefits program may find themselves struggling to attract talent. As a result, there has been significant innovation in rewards packages in recent years, as companies have sought to gain a competitive advantage over their rivals in attracting and retaining talent. This paper addresses several critical questions regarding the ways that companies in the 21st century are working to attract and retain the workforce they need.

Innovations in Compensation Strategy

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

The next level of strategic compensation management holds that companies wishing to attract top talent need to offer superior benefits. This does not mean minor conveniences like unrestricted internet access — which is roughly equivalent to allowing employees to use the restroom without asking permission — but rather equity-based compensation and benefits geared toward maximizing creativity and productivity. These are the kinds of benefits that have been popularized by their success in the technology sector, where competition for talent is intense. In other fields, competition for talent may not be as fierce, but companies have begun to be more creative in what they offer employees in order to improve the actual work environment.

Traditionally, benefits have focused on what the employee takes home from the job — a pension, health care, orthodontic coverage for a child, eyeglasses for another. The modern, innovative approach to benefits has begun to focus more on what the company can offer employees while they are on the job, in order to improve motivation and performance. Work environment and career development have become, alongside pay and traditional benefits, an integral part of total compensation in the 21st century (Kaplan, 2005).

This shift has occurred because companies have started to recognize that different people want different things from their employment. Some people are focused on career development, some prefer to work in a particular location, and others prioritize self-actualization above all else. The idea that employees have different needs is not new — it goes back at least as far as Maslow's hierarchy of needs — but companies are only now beginning to build this insight into their total compensation packages. Most importantly, companies need to align their total compensation packages, and all the innovations contained within them, with the type of worker they hope to attract.

Innovations in rewards must therefore serve a specific purpose. Technology firms offer unique benefits in order to entice younger workers to spend more time at the office, which is necessary in work that requires long hours to complete projects — give people a place to rest or decompress, along with food, and they can contribute significantly more hours when deadlines demand it. In other instances, workers are attracted by the opportunity to live and work in a major city, or to join a rapidly growing company that will give them the opportunity to build their career alongside it.

Aligning Benefits with Jobs and Worker Preferences

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 its rewards with that worker's preferences (Medcof & Rumpel, 2007). High-technology workers, for example, have different rewards in their workplaces not only because the work itself is different, but because their needs differ as well. The same applies to many other worker categories — where employees have distinct rewards preferences, those preferences need to be addressed.

The basic process for a company is to identify its strategic goals and determine what type of worker will be needed to perform the tasks required to achieve those goals. The next step is to understand what rewards that class of worker is seeking. The competitive marketplace must also be understood — workers always want generous rewards, but whether a company must provide them depends in part on the market for that type of worker. Once the company understands these factors, it can develop its total rewards package to attract and retain the workers it needs.

The buffet-style benefits concept emerged a couple of decades ago as an innovation that sought to tailor the benefits offered to the needs of each individual worker, allowing employees to choose from a variety of options — each with a specific monetary value — up to a capped total. Some of the more innovative rewards today go beyond this approach, with companies offering things outside the traditional rewards framework to certain classes of employees. This still needs to be done in a structured manner — explaining, for instance, why some employees receive certain perks and others do not — but the company must understand the needs of each type of employee in order to meet those needs creatively (Kwon & Hein, 2013). The central idea is that creativity in rewards means moving away from models that treat all employees identically and toward a better fit between what employees need and what is offered to them.

Innovative benefits can and should therefore be tied to specific jobs. Because they are inherently rooted in the on-the-job and development aspects of rewards, it is both easier and more beneficial to tie them directly to the role. Employees in specific jobs will tend to share similarities in what they want from their work, and this creates opportunities for meaningful alignment. The harder a specific type of worker is to find, the more important it is for the company to closely match the benefits to the role. Benefits can also be tied to performance metrics, which may create greater equity throughout the organization by connecting specific benefits to specific job elements. A technology worker asked to work 80 hours in a week, for example, might receive a very different set of benefits than a worker with a standard workload — tying things like free meals or gym memberships to metrics that are specific to a particular category of worker is an important part of making such systems fair and effective.

References

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Kaplan, S. (2005). Total rewards in action: Developing a total rewards strategy. Benefits & Compensation Digest. Retrieved June 12, 2015, from http://staceykaplan.com/pdf/Stacey_Kaplan_Total_Rewards.pdf

Kwon, J., & Hein, P. (2013). Employee benefits in a total rewards framework. Benefits Quarterly, 2013(1), 32–38.

Medcof, J., & Rumpel, S. (2007). High technology workers and total rewards. Journal of High Technology Management Research, 18(2007), 59–72.

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