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Why a Total Rewards Approach is Crucial

28 January, 2013

The term “total rewards” is still foreign to many compensation & benefits professionals. We all have a vague sense of its meaning, but the concept has not impacted the way we do our jobs. This, I believe is due to the way HR is organized, and to a lack of understanding of the concept in its application.

Total rewards refers to the totality of rewards received in return for work. This includes tangible (extrinsic) and intangible (intrinsic) rewards. Tangible rewards include pay, medical insurance, time off with pay, working hours, car/parking, pantry or anything else that is physical or financial. Intangible benefits include good management, a fair review, career opportunity and development, and the working environment, i.e. culture. The last time you considered joining a company, didn’t you make a list of the pros and cons? Didn’t that list include both tangible and intanglble rewards such as these?

How HR is Organized

In the U.S. compensation specialists are in one group, and benefits in another. You rarely have responsibility for both areas unless you become the C&B Manager. Outside the U.S., I have observed that C&B are generally kept together. You rarely find someone only doing benefts, or only doing comp. The career ladder starts with C&B coordinator, then C&B analyst/specialist/officer, then C&B manager, etc. Combining the two is useful because the C&B professional sees the whole range of tangible rewards, and how they fit together. Cash compensation establishes an employee’s standard of living, while benefits protect that standard of living. Compensation is highly differentiated by the job and by the individual, whereas benefits are generally uniform, regardless of job level, or perhaps tiered by a few levels.

In contrast, those who do only comp, or only benefits, may learn to see the world through a single lens. A comp person will consider almost anything negotiable, whereas a benefits person will tend to respond to requests more quickly with a ‘yes’ or ‘no’ answer. It would be beneficial for benefits staff to cross-train by doing comp for 6 months, perhaps job-swapping with a comp person who can do benefits for 6 months. This will enable both people to stretch their view of rewards to include both comp and benefits, and get feel for how they are different from an employee’s perspective, and in terms of how to manage them.

Total Rewards in Application

We need to understand how the total rewards concept can really make a difference in how we do our work. Consider these examples:

A manager says a key employee has an outside offer and we have to match it in order to keep her. So you approve a 15% increase to match the outside offer. Two weeks later, the employee still resigns. Apparently, the issue was not pay.

A job candidate has another offer for a lower salary, to work for a government-linked organization. You have sweetened the salary offer to entice him to join your MNC headquartered in the U.K. They take the lower-paying job. Why? Better job security.

Your industry is in a talent war for marketing talent. You cannot afford to match the competition on salary, so you introduce a flexi-benefits plan that reimburses employees for private language classes, family travel, yoga, ballroom dancing and many other “life enrichment” activities. As a result, you get a flood of applications and find it easier to get the talent you need.

These examples illustrate how the total package must be right to attract or retain talent. To make the package “right” for each person sometimes requires flexibility, or at least segmentation of package design for various groups, such as senior executives, sales people, technical staff, early career, etc. In the war for talent, organizations who get the package “right” more often will win more often.

Learn to Ask the Right Questions

When a manager says someone left despite a matching salary offer, ask the manager “was this really about pay?” The manager may be aware of other issues. If there is a pattern of people leavin this manager, perhaps it is not about pay, but about management style.

When a candidate takes another job due to better job security, ask the candidate whether he or she felt your offer was competitive. You may get some useful feedback. Ask the candidate whether they feel your company is viewed as having low job security, perhaps due to recent layoffs/redundancies or plant closures. Listen to what candidates tell you.

If candidates turn down higher salary offers and join you, ask what it was that swayed their decision. Was it the flexi-benefits plan? Was it something else?

Get into the habit of finding out how your total rewards are perceived by employees and by candidates. Without this continuous input, how will you know if your total rewards mix is right? Instead, you will be like the countless C&B departments where comp is benchmarked to align to market median, where benefits are aligned to market median, where your performance management program is designed to follow the latest “best practices”, etc. By following the herd, many companies feel their rewards practices are justified, when in fact the perception by employees and candidates could be quite different.

Granola

The concept of total rewards is no different from having recipes in a cookbook. It is the mix of ingredients–the selection, quality and proportion of various elements–that makes an attractive whole. We hear about “silos”, but perhaps you haven’t seen real silos. All big farms have them. They separate the corn from the wheat, barley, etc.

Silos

By working in silos, we direct all comp issues to the comp people, all benefits issues to the benefits people, the same way farms load each type of harvest into the proper silo, to keep them separate. But human beings are not that simple. I can eat corn flakes, or rice krispies or shredded wheat for breakfast, but my preference is for granola, a nice mixture of multiple grains! The needs and desires of people in search of a workplace are complex, as well. We need the right total rewards “recipe” to compete for talent effectively, and the recipe must be flexible to accommodate different tastes! You cannot accomodate everyone 100%, but with a combination of listening and flexibility you can get very close, at least closer than your competition.

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