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Why must employers teach employees about ‘Total Rewards’?


The short answer to the question is; “Businesses are losing great talent to perceived better paying competitors because employees simply don’t understand the ‘Total Reward’ they are receiving.” 

Let’s start with the definition of ‘Total Rewards’ 

You’re probably already aware of ‘Total Benefits’ because you may have received a benefits statement. ‘Total Compensation’ is a phrase common to most, but ‘Total Rewards’ seems to be a mystery to many of us. 

Here we set out to explain, exactly what is meant by ‘Total Rewards’ and the effect these have both as an employee and as an employer.

At the highest level, ‘Total Rewards’ are not new.  They’re just a different way of highlighting the employer-employee relationship with regards to payment for the job done. 

‘Total Rewards’ looks at the complete compensation picture. It groups together the total value of base pay, bonuses and equity with any other benefits. These can be monetary or any other employee perks, which might for example include education and employee discounts. 

There is no standard ‘Total Reward’

There is no standard total rewards package. They will vary greatly between company even within the same organization.

The two key factors affecting the package are:

1) Reward negotiations at time of employment.

2) Outcomes the company wants to achieve directly or indirectly through an individual’s performance. An employee’s role also determines the type and frequency of rewards. 

For example, sales people often receive a lower base salary, but have commissions paid when they hit their targets, even more so when they over-perform. 

Executives often receive stock options if their business units achieve the growth targets. For others, rewards can be tied to personal achievements and/or to those of a team or of the overall company. 

All are incentivized by these rewards to ensure targets are achieved. The beneficiaries in all scenarios are the employee and employer.


How ‘Total Rewards’ work 

This again varies from company to company. For instance, small companies tend to offer a base salary with a limited number of (required) benefits. This is usually down to economics.

Initially, start-up businesses can’t afford more than the basics. Anything above can cost more in administrating than any benefits the incentives deliver.

Start-ups typically offer a stake (stock options) in the future sale of the company. As companies grow, additional rewards and incentives tend to be introduced.

If expanding internationally, HR and rewards teams must try to match basic benefits to the location and meet any local legislation. They must also be sure that any additional benefits that are in line with expectations of employees in that country. This is where local HR and payroll knowledge is essential.

Make it easy for people to work for you

Incentive benefits are a great way to attract new people. They’re also a great way to motivate and retain employees, especially if your business is operating in a competitive environment.

The great thing about rewards is that they can be flexible. There is no need for a ‘one-size fits all.’ As a result, employees can choose the benefits that best suits their current needs. They can adapt and change these to suit their changing personal circumstances.

The great thing about agile rewards and benefit is that it can help to keep your workforce motivated. It creates the perfect opportunity to remind them how much you value them. However, there is no point to this if your employees don’t recognize the monetary worth of these rewards.

Mind the compensation gap

A recent study by Benify and YouGov, reported that 8 out of 10 employees underestimate the total value of the rewards they receive from their employer. A staggering one third of ‘Total Reward’ is overlooked as a ‘nice to have perk.’

What this means is that when it comes to comparing salaries, many are using just 67% of their actual salary as the comparison figure. This is a major problem for employers and employees.

This lack of visibility is what we call that the “compensation gap.” This gap is the difference between what employees perceive as their ‘total compensation’ and the actual amount an employer spends on them – their total reward.

Consequently, hundreds of thousands of people leave employers they’re otherwise happy with, for the draw of a higher salary. More often than not, what on paper looked to be better, turns out not to be in terms of total reward.

Why this gap must be filled?

The compensation gap is crippling for many businesses. This is especially true for firms where competition for specialist skills is high. The cost of these lost skills in business performance and growth can cost employers millions of dollars each year.

This loss is without adding in the resource and cost of hiring replacement talent. There is then the time required to get replacement employees up to the level of those they replace, if in fact if this is possible. No business can achieve its full potential while the compensation gap is there.

Why? Because the flight risk is just too high. It’s vital that there is clarity of ‘Total Rewards’ across the business. This clarity needs to be for both the business and for the workforce.

HR teams must always be asking: 

  • Are we rewarding people fairly?
  • Are we incentivizing the right people?
  • Where in the business do we have flight risks and what can we do to stop people leaving?
  • What rewards do each generation in the workplace expect to receive?
  • What can we offer to make it irresistible for people to be anything but loyal to our business?

The only way to find the answers to these questions is to have complete visibility of your global rewards, benefits and compensation programs.

Ideally, platforms integrate with your wider workforce and payroll applications. This creates a single source of HR data. By analyzing this, you can establish what rewards resonate with different employee populations and where there is little return on investment.

Review and replace these benefits with more ‘up-to-date’ incentives. Ideally with rewards that reflect current trends and that can attract and retain the people you need in your business. 

The greatest indicator that you are getting rewards package right is to always have the best talent, in the right places, at every stage of your business development. This also means looking ahead.

Keep asking questions

  • What talent do we have that we can train to be the leaders of our future?
  • What skills will we need to ensure we have no skills gaps?
  • Do we need to bring these colleagues in from the outside?
  • What will they expect from us if we do?
  • What do we need to keep our own talent we’ve identified as ‘hot for the future’?

You then need to be sure that your ‘Total Rewards’ packages reflect the answers to the above.

Educating the true value of ‘Total Reward’

It has never been more critical that your workforce understands the total value of their rewards. 

Changes in the ways we choose to work, means your talent has access to a far wider range of potential employers. Some of these companies will be very generous to those they really want to have work for them. Normally, these people are often your company’s high-flyers!

In order to keep employees, you must maintain the attractiveness of your business at all stages of your employees’ life cycles. You need to engage, motivate and communicate. Internal communications plays an important role here.

Why do this?

After the excitement of coming on board, employees typically forget the monetary value of rewards. They compare base salaries to determine if they’re still being paid fairly and receiving ‘market value’. Employees also talk to each other!

Without the means to easily check, a company offering $8,000 a year more can become very attractive. Even though the actual total reward from your employer might actually be $13,000 higher, for example.

Creating complete visibility of reward values is crucial and it should become a key element of your talent acquisition and retention strategy.

Be clear  

Cloud-based platforms are ideal for offering clarity. As they can be accessed on mobile devices, an employee tempted by an approach or job advertisement can easily see if the offer is comparable with their current reward.

Visibility can be a great way to start an employee-employer conversation. By giving both parties the opportunity to see whether a salary and / or rewards review is needed a solution that is acceptable for both parties can be found.

It might just be that the employee is guided to make different decision to their choice of flexible benefits and the attractiveness of the current package is increased. Without visibility, intelligence-led conversations are almost impossible.

In summary, ‘Total Reward’ is the total value of everything including and in addition to base salary.  If the employer is clear in its communication of the total employment package and not just the gross salary, the compensation gap will shrink and in time, disappear entirely. 

Well-defined rewards strategy

A well-defined reward strategy reflects the values and culture of the workplace environment. It determines how well you achieve your organizational strategy and objectives.

The same model applies whether you’re a local business or a multi-country enterprise. Extensive industry research points financial success to a well-defined reward strategy. Local knowledge is vital.

What should a reward strategy cover?  

Organizations can get as great a return, if not more, from non-financial rewards as they can from financial ones. Therefore, researching your rewards strategy needs to look beyond industry salaries to include rewards and benefits.

In addition, it needs to map desired business outcomes with people expectations. The strategy must be affordable to the business and acceptable to the workforce. Most of all, it needs to have the structures in place to ensure the rewards are paid, accurately and on time. Naturally, any performance gains and business results should ideally exceed the investment into rewards.

Key considerations

Cash compensation
Every organization must pay its employees for the services that they provide (i.e. time, effort and skills). This includes fixed (salary and allowances) and variable (bonus and incentives) pay.

The cash compensation provided to employees usually increases over time and can be linked to a number of different factors including performance and/or career development.

Benefits are used to supplement the cash compensation paid to employees. These vary depending on the size of the organization and affordability.

Providing security and comfort to the employees and their families, these benefits can include holidays, medical cover, income protection and pension schemes.

Personal Growth
Personal and professional growth opportunities for employees is an essential part of any reward strategy. These can be skills acquired on the job or formal training programs. This ensures both the employee and business have skills fit for the future.

However, this development should not be standalone, but linked to wider career development plans.

Work Environment
A positive work environment can improve performance and loyalty. A great workplace culture can be the defining factor in retaining or losing top talent.

Ultimately, we all want to work in an environment where there is genuine feeling of team spirit and togetherness. Good management is also vital. Managers who are highly motivated will consequently motivate and inspire their teams to perform at their highest level.

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