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Compensation in the Context of Total Rewards

07/02/08
By: Diana Neelman & Paul R. Dorf, CRI

The newest “buzz phrase” in the compensation world is “Total Rewards.”  This includes not only the traditional elements of pay and benefits, but it recognizes that people want to enjoy their work and, when they finish the day’s work, they want a life from which they get pleasure.  As employers, there is only so much we can do about employees’ after- work experiences, but we can and should do a lot to enhance the day-to-day work experience.  The efforts we make in this area will pay big dividends by enhancing an employee's desire to remain with the company and be motivated to perform at his/ her peak level.

Compensation and benefits are the first and most quantifiable aspect of the total rewards that an applicant sees, and is therefore often the piece of the puzzle that first attracts a candidate to an employer.  But what role does compensation have in an employee's perception of his/her work experience?

We first have to recognize the basic objectives of compensation.  There are four (4) main objectives of the pay package:


  • Attract: Does the compensation offered to a prospective employee recognize his/her skills and expertise, and is it commensurate with what others are offering?  Compensation should be competitive as well as sufficient to entice an employee to join the company.
  • Retain: Is the compensation package sufficient to encourage the employee to remain at the company, or will they become dissatisfied, view the greener grass elsewhere and be susceptible to offers to go somewhere else for a seemingly better package
  • Focus: Does the pay program reward the employee for achieving the specific results that the company deems important?
  • Motivate: Does the compensation package recognize and reward the employee in such a way as to make him/her aspire to perform at their best effort, which in turn leads to organizational and personal success?


In order to achieve these objectives, companies must design and implement the “right plans” as part of their Total Rewards Package. For example, if an organization provides a costly but phenomenal benefit package, this will help to attract and retain staff.  But to maximize its return, the company must communicate the value of this program to employees and their families.

Providing employees with educational opportunities (and paying for them), has long been viewed as a prized benefit by employees, and therefore should enhance the Total Reward Package.  The hard costs involved with the education benefit are usually more than offset by the increased knowledge and skills which directly benefit of the company.

Offering flexibility can help to accomplish all the previously mentioned objectives – attraction, retention, focus, and motivation.  Not only can it benefit the organization’s desire for better coverage, but it can make employees more productive by allowing them to commute at off-peak times and schedule their work to better accommodate their own personal and family needs.

Therefore, in considering the Total Rewards Package and designing its various components, Human Resources professionals and management in general need to recognize the various employee populations and take into account the different needs of these groups.  In other words, they must consider what new plans or changes to existing programs will enhance the Total Rewards Package, and which in turn will make the company a more attractive and desirable work environment.

The compensation component of the Total Rewards Package, the biggest cost item, may be more significant to some employee groups than others.  For recent graduates, compensation may be the critical component that they look for in a prospective employer, since they have limited experience in the corporate environment and may not necessarily know what they are seeking.  On the other hand, individuals with families may be willing to forsake higher pay and are more interested in a good benefits package.  Those employees in the later years of their career are typically seeking a sense of security and belonging, as well as an opportunity to put their skills to use and excel, thereby finishing in “a blaze of glory.”

Each component of the Total Rewards Package must be viewed as not only based on its own virtues, but also in the context of a big picture. Ultimately, the "whole" should be bigger than the sum of its parts, and it is the totality of the Total Rewards Package that will make a difference and meet both the company’s objectives, as well as, the employees’ needs.

 

 

 
 

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This information is not intended for use without professional advice.

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