Total Rewards Programs: Beyond Compensation in HR

Introduction

A total rewards package contains many different elements intended to compensate employees, in some way, for the time they spend on the job. Companies are unable to follow a single prescribed plan because different industries have different needs, but every company can use a total rewards system to attract the best employees and retain them. However, there are significant challenges with this system, and solutions are only beginning to come to light.

Some — even within the total rewards community — continue to believe that compensation in the form of monetary rewards and basic benefits should be sufficient to satisfy employees and keep them engaged. Unfortunately, this is not the case. A benefits package that includes a comprehensive medical plan, some form of retirement savings, and other monetary rewards is not enough to make productive employees out of even the most capable workers. Research has shown that employee satisfaction — and therefore productivity — is not generated by offering simple monetary compensation for effort. People want to feel that they are part of a caring employer that also rewards them intrinsically. Employees respond better when they are genuinely engaged at the worksite rather than simply expected to perform in exchange for pay.

The solution to this problem is to expand rewards programs to include a wide variety of creative compensation elements. Many companies have begun offering flexible scheduling. Others have added on-site childcare or nap rooms, which help substantially with productivity. Human resource departments need to think creatively about the compensation employees receive, because employees want to feel part of something larger than just a place to work. When they do, the company benefits as well.

For many years, the prevailing belief was that compensation was the most important element of the total rewards package (Carlton, Anderson, Johnson, Longton & Lulli, 2011). Research suggested that a worker would be willing to endure the demands of a difficult job or challenging work environment if compensated at a high enough rate. If the compensation package — including benefits — was sufficient to make the employee's personal life meaningful, it would matter less that the job itself was less than desirable. This rationale applied in many occupations involving a great deal of travel, danger, or difficult assignments. Research indicated that employees once agreed with this perspective (Hsieh & Chen, 2011), but times have greatly changed what employees expect from a job.

The fact that people are now far more willing to change employers than they once were — employee tenure with a single employer has fallen dramatically over the past 25 years (Hsieh & Chen, 2011) — reflects the shift in what workers consider a good job experience. Generations X and Y are more interested in a job experience that allows for creativity and with an employer that demonstrates employee worth in more ways than just monetary compensation. Employers have also recognized that employees are increasingly willing to seek other opportunities if their current job does not meet their expectations. Even periods of financial hardship and a difficult job market have not fully reversed this trend. Workers are also more willing than ever to pursue jobs outside the fields they were specifically trained for.

The Shift Away from Compensation-Only Thinking

The shift from a strictly compensation-based paradigm — one in which employers recognize that employees want more from the job experience — has been underway for roughly a decade, yet many employers still find it difficult to make the change. Employees, too, often find it difficult to articulate what they actually want. In today's environment, employers need to be creative in their total rewards packages in order to attract and retain the best talent.

This recognition is itself what gave rise to total rewards thinking as a discipline. Although compensation in all its forms remains highly desirable and employees want it to be as strong as possible, researchers found that employee satisfaction was not as closely tied to the compensation package as employers once assumed (Trahant & Yearout, 2006). The emerging goal became integrating the workplace and the employee's personal life to such a degree that the employee feels at home at work and is genuinely energized about going in each day.

Conclusion

Research has demonstrated that a total rewards package cannot be limited to the compensation offerings that have been standard over the past century. Money alone is not enough to keep employees engaged and productive. Since the ultimate goal of any company is financial sustainability and growth, human resource departments and managers must be creative in how they structure and deliver compensation. By making the company feel more like a community, employees become more satisfied with their work environment and more productive in their roles — an outcome that ultimately serves the organization's broader interests.

References

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