Total Rewards Model: Employee Motivation in Technical Fields

Introduction and Background

Research in employee motivation has long focused on which methods most effectively stimulate employee performance. Until recently, the body of research examined single methods and their individual effectiveness — for instance, pay, benefits, job satisfaction, and employee review as discrete motivational tools. This approach led to the conclusion that different types and methods of employee motivation produced different results depending on the personality and individual traits of each employee. A new paradigm has since entered the field: the total rewards approach. This research proposal explores total rewards in terms of its effectiveness in motivating employees and improving company performance.

Increasing demand for high-quality employees has been a persistent challenge in technical fields. Although the number of potential candidates for these positions has grown, competition for skilled employees is intense, and strong candidates can be easily attracted away. In highly technical fields, trained and skilled employees are among the most valuable assets a company can possess.

This is particularly true in areas involving research and development. Finding ways to attract and retain highly desirable technical employees is one of the key challenges human resources departments face. This research will explore which elements of the total rewards program would be of most benefit to human resources departments in developing their staff and preserving their most valuable assets.

Success in technical fields depends on the ability to attract, motivate, and retain high-quality employees. Human capital is now considered one of the most important factors in maintaining profitability. In order to increase productivity and ensure a successful enterprise, rewards packages were often designed on the premise that if the employee provided something to the company, the company would provide something of value in return. The challenge was finding the right set of rewards that would effectively motivate the employee.

To understand how the total rewards model developed, it is important to trace the processes organizations used to design their compensation packages. Prior to the 1970s, salary structures were rigid and controlled by management. During this period, benefits packages were homogeneous — presented to what was considered a homogeneous workforce (Worldatwork.org, 2006). The result was a workforce in which some employees were motivated by the package offered while others were not, encouraging the latter to seek employment elsewhere. This was not an effective means of motivating or retaining valuable employees.

Literature Review

During the 1970s and 1980s, organizations began to recognize that benefits and compensation packages were part of a broader business strategy that could give them an edge in attracting the best employees and managerial staff. Strategically designed compensation packages emerged in response to the development of multinational corporations, intensifying business competition, and a diversified workforce that no longer fit the stereotypical household models of the 1950s and 1960s (Worldatwork.org, 2006). These changes were also driven by rapidly rising benefits costs and new government regulations and mandates regarding employee benefits. The most important effect of these shifts was that employee benefits became part of the overall organizational strategy rather than an afterthought.

These changes prompted professionals to seek more efficient ways to improve employee attraction, retention, and motivation. Human resources specialists emerged who concentrated on developing compensation and benefits packages that would meet both financial goals and workforce quality objectives. This gave rise to a new way of thinking about compensation and benefits. The concepts of tangible and intangible benefits began to emerge, as did flexibility in benefit packages (Worldatwork.org, 2006). The total rewards model developed from the concept that benefits constituted a competitive and strategic advantage.

The total rewards model concentrates on three primary elements: compensation, benefits, and the work experience. It also incorporates the need for acknowledgment, work-family balance, organizational culture, career development, and a positive workplace environment. The purpose of the model is to produce an employee who is satisfied and engaged, yielding measurable improvements in business performance and growth (Worldatwork.org, 2006). The five core areas of the total rewards model are compensation, benefits, work/life balance, performance and recognition, and development and career opportunities. Leveraging these five areas is the key to a successful total rewards program.

Using the total rewards model, the employer provides rewards that employees value, and employees in turn contribute commitment, talent, and effort that ensures organizational success (Worldatwork.org, 2006). Total rewards programs include both monetary and nonmonetary means of motivating employees. Each of the five areas is examined below.

Compensation is the first area of the total rewards system. Fixed pay, known as "base pay," is compensation that does not vary with performance or results. Variable pay, by contrast, changes directly in accordance with an employee's level of performance and must typically be re-earned each work period. Short-term incentive pay focuses on performance over a period of one year or less, while long-term incentive pay covers periods longer than one year and often includes stock options, restricted stock, or performance-based cash awards (Worldatwork.org, 2006). Compensation also includes social insurance (unemployment, workers' compensation, social security, and occupational disability), group insurance, and pay for time not worked such as holidays and vacations.

Work/life balance is the second category. These are activities that directly support employees in achieving success at both work and home, including workplace flexibility, paid and unpaid time off, dependent care support, community involvement, and managerial interventions to create a more positive work environment. Some of the most innovative programs involve on-site day care, allowing parents to maintain a degree of direct involvement with their children during the workday.

Performance and recognition is the third area. The backbone of this component is performance planning, in which expectations are established that link individual goals with team and organizational goals. Performance feedback communicates results back to the employee and may include suggestions for improvement. Recognition programs reinforce the value of continued improvement, provide positive feedback, and help employees feel like valued members of the team.

Development and career opportunities form the fourth area. Employees must be able to advance and cultivate a sense of personal goals within the organization. Programs in this category include learning opportunities, coaching, mentorship, and pathways for advancement — all helping employees deploy their greatest talents for organizational benefit.

Culture is the fifth area. Culture refers to the attitudes and behaviors that collectively shape how individuals act within an organization. Cultural change is difficult because it requires shifting fundamental beliefs. Culture and the physical work environment together influence employee perceptions and, consequently, the effectiveness of the total rewards model and its benefit programs.

These five areas have become standard across many organizations and are common terms in the provision of compensation and benefits packages. Case studies are the most common type of research conducted on the effectiveness of these programs. However, in developing such programs it is important to understand which benefits will appeal to the largest number of employees. Survey methodologies are particularly valuable for this purpose — a point that forms the theoretical foundation of the proposed research study.

Motivation is another element central to any discussion of the total rewards model. Motivation falls into two categories: intrinsic and extrinsic. Intrinsic motivation encompasses an employee's sense of achievement and self-respect, and it results in higher levels of performance than extrinsic motivation. Extrinsic motivation refers to tangible rewards such as pay and benefits. Although extrinsic motivation was once considered the most important type, it is now recognized as less impactful of the two (Giancola, 2007).

The pay and benefits package offered by Constellation Energy (2011) is an excellent example of the total rewards program in practice, divided into the five basic categories defined by the model. The Georgia State Government (2011) has also implemented the total rewards approach, directly following these five categories. Many organizations now recognize the advantages of the total rewards program and adopt it as their primary framework for employee compensation and benefits.

Much of the academic literature on the success or failure of total rewards packages relies on a case study strategy. One of the most pivotal studies compared companies in new and old economies and was among the first to demonstrate that people work for more than just pay and financial rewards (Zingheim & Schuster, 2000). The total rewards program was found to be one of the most successful approaches for creating synergy between the workforce and organizational goals. The authors of this study went on to found one of the first and largest consulting firms specializing in total rewards program development, and their research dominates the academic literature in this area.

Fay & Thompson (2001) were among the first to explore the contextual determinants of reward system success. Their exploratory study examined what constituted successful and unsuccessful rewards systems — including modified base pay, short- and long-term incentives, benefits, prerequisites, and lifestyle rewards — measuring success across seven factors and ten conditions. Their work contributed a common set of criteria that can be used to judge the success of different programs, supporting the standardization of assessment measures that the proposed study will employ.

Danish & Usman (2010) found a distinct connection between employee commitment and organizational performance, and determined that reward and recognition programs were the most important factors in maintaining high employee self-esteem and job passion. Carlson (2005) found that approximately 64% of workers reported a strong sense of commitment to their organization, up from 56% in 2002 — and that pay and benefits alone did not fully explain these findings. One study concluded that companies need to extend their focus beyond pay and benefits in order to retain the good employees they already have.

Khan, Farooq, & Ullah (2010) investigated the role that rewards play in employee motivation in commercial banks, using 200 questionnaires as their data collection instrument. The study found that management can use four different tactics to motivate employees and that different tactics would have varying impacts across a diverse employee population. Samuel & Chipunza (2009) explored the role of intrinsic and extrinsic variables on employee retention and turnover, finding that training and development, challenging and interesting work, and freedom for innovative thinking were key elements in reducing turnover rates.

Current literature focuses on developing theory to improve employee retention and increase motivation, with the total rewards model representing the culmination of research beginning in the late 1990s. Several studies have found that non-pay rewards are the most important factors in retaining valuable employees. Although studies supporting intrinsic rewards as the critical element are plentiful, few examine the overall effectiveness of total rewards programs in an applied context. Most existing studies are case studies applicable only to companies similar to those used as their basis.

The purpose of this study is therefore to examine which types of rewards are most beneficial for inclusion in a total rewards package, with a focus on benefits commonly placed within the five areas of the model. The study aims to develop best practices for total rewards programs, contributing to this body of research by providing a more precise best-practices framework for the information technology field. It will help human resources departments design the most effective benefit packages for retaining employees in technical fields.

Problem Statement and Objectives

This research will examine the total rewards model of employee motivation, explore various methods of implementation, and assess the effectiveness of applications of this model. It will investigate whether the total rewards model is superior to other approaches that have preceded it. The study will concentrate on technically oriented fields in the computer industry — a highly competitive area of the workforce — where retaining high-quality technical employees is a key element of long-term success.

The objectives of the study are as follows:

1. To determine which of the five areas of the total rewards model are most important in attracting and retaining technically oriented personnel.

2. To determine which specific elements within these five areas of the total rewards model are most effective in attracting and retaining technically oriented personnel.

3. To develop a set of best practices that will help human resources personnel design pay and benefit packages that achieve their employee retention goals.