This paper examines the Total Rewards (TR) system as a strategic framework for employee compensation and organizational performance. It outlines the five primary advantages of adopting a Total Rewards approach—including flexibility, improved recruitment and retention, reduced turnover costs, greater labor market visibility, and enhanced profitability—alongside five common pitfalls that can derail implementation. The paper then details the six analytical perspectives organizations must assess when designing a TR program and presents a six-step design process. Finally, it describes an eight-step communication plan to ensure successful rollout and employee buy-in across all organizational levels.
There are a number of approaches to organizational behavior, maximization of groups, innovative working environments, and solution-oriented models for business that are adaptive to the needs of the new workforce. Human resources experts agree that the modern work situation is dramatically different from that of even the 1980s and 1990s. The new generation has different expectations about work, participation, and management. Organizations are now forced to shift away from old ways of compensating employees and toward building packages that address the needs of the modern worker in a win-win situation.
One of these methods is called the Total Rewards System, which provides a way to both fiscally compensate and reward performance while offering benefits, work-life rewards, and continual career-based development (Glass, 2007).
Total Rewards is more than a title — it is a paradigm, an approach, and a way of thinking about business partnerships. Instead of employing a number of separate reward approaches, the Total Rewards package views the organization as a strategic whole that can find many ways to compensate employees while still attaining its own goals. The top five advantages to instituting such a program are:
1. Increased flexibility for the organization. TR packages allow rewards to be mixed to meet the divergent emotional and intellectual needs of the workforce. This flexibility allows for greater growth on both sides and enables each person to be recognized as an individual with differing goals and needs, while still fitting within the overriding business paradigm.
2. Improved recruitment and retention. Organizations now face two serious issues: it is difficult in certain areas to find the right employee fit, and with the way newer generations change jobs, retaining those employees is equally challenging. Using a TR package is a strategic way to recruit and retain talent because it meets more of the employee's needs.
3. Reduction in labor costs and turnover costs. While improved recruitment is more strategic, reduction in labor and turnover costs is more tactical. Many companies estimate that it costs approximately 30 percent of an employee's salary if that employee quits within a year. By reducing these costs, more dollars can be directed toward meaningful rewards and important organizational needs.
4. Greater visibility in a tightening labor market. Between demographic shifts and a tighter talent pool driven by job specialization and expertise requirements, an organization that gains a greater understanding of what employees actually value can reallocate investment dollars and use that understanding as a marketing tool to attract and develop people.
5. Enhanced profitability. TR packages are not necessarily more expensive because they are not simply "more" of everything — they represent a strategic approach to meaningful rewards. This, combined with a happier and more engaged workforce, creates a more productive and positive work environment, which in turn leads to an enhanced return on investment and greater profits (WorldatWork, 2007).
There are five major pitfalls organizations must be aware of to ensure success in a TR program. Understanding these failure points is essential before beginning any implementation effort.
1. If the organization fails to revamp the system as a complete Total Rewards paradigm, the effort will likely fail. Rather than changing only small pieces, the whole structure must be revamped — re-engineering in pieces results in a program that lacks cohesion.
2. While a full revamp is necessary, organizations should avoid rolling everything out at once. Instead, the program should be launched in phases to allow for pilot testing and early correction of flaws.
3. Do not limit those involved in the process. Open communication about the program should begin early, ensuring broad organizational input and awareness.
4. Ensure that a thorough and precise analysis is completed prior to implementation. Skipping this step risks misalignment between the program and actual employee or organizational needs.
5. Communicate to all levels of the organization regularly and effectively. Consistent communication ensures greater buy-in and significantly increases the chance of success (Jackson, Schuler, and Werner, 2006).
There are six basic steps to the initial design of a TR program. Each can be seen as a slice of the overall pie in relation to compensation, development, and most especially retention and position in the marketplace. The process begins with six analytical perspectives that must be thoroughly examined:
The Financial View. What are the costs associated with compensation? What types of risks does the organization face? What are the current limitations of the program in place?
The Environmental View. What is the current technological, managerial, and communications environment within the organization? Is the organization positioned for innovation and development?
The Competitive Market View. Relative to the competition, how does the organization value its human resources within the overall marketplace? What is the total compensation value compared to competitors, and how is the organization perceived externally?
"Six analytical views and six implementation steps"
"Eight-step plan for communicating TR to employees"
The Total Rewards system represents a paradigm shift in how organizations think about compensating and developing their workforce. By taking a holistic, strategic view that encompasses compensation, benefits, work-life balance, and career development, organizations can attract and retain top talent, reduce costs, and enhance profitability. Success depends on thorough analysis, careful design, phased implementation, and clear communication at every level of the organization.
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