Why is ‘Total Rewards’ key to talent management?

Why is ‘Total Rewards’ key to talent management?
 Total Rewards (TR) is talent life-cycle management tool that holistically embeds into the whole business plan.  TR can add feather to the modern day HR if they can handle it well to give company the long term competitive edge Unfortunately TR is not a broad-brush tool and so it requires an insightful ‘HR Leader’ with strong sense and capability of strategic alignment, analytic thinking and rightful implementation strengths .

You must show employees “what’s in it for me.” This means tying together the benefit of the job, the culture, their colleagues, and the company’s mission and its values, as well as total rewards. But total rewards are the most immediate and visible element to employees.

SOURCE: Bremen, John and Sejen, Laura. Advancing Total Rewards & the Employee Value Proposition. WorldatWork. 2012.

Compensation can be the single biggest cost to an employer, representing up to 70 percent of annual operating costs. In 2011, 54 percent of employees indicated that compensation was very important to their job satisfaction.

SOURCE: SHRM Research Report. 2011 Employee Job Satisfaction and Engagement: Gratification and Commitment at Work in a Sluggish Economy.

An effective compensation strategy must be about more than base pay. To best support the strategic goals of the organization, a total rewards framework should include monetary compensation alongside non-cash elements such as career and professional development. After the right mix of cash and non-cash rewards has been determined, a budget must be allocated to encourage the right behaviours, deliver high perceived value to employees, and improve return on investment.
The idea is to motivate the workforce to deliver superior results with a mix of:

·         Base-pay increases
·         Short-term incentives, such as individual or team bonuses
·         Discretionary awards, such as spot bonuses
·         Equity awards
·         Long-term incentives, such as long-term cash plans
·         Profit sharing

 This winning strategy works because it offers top-performing employees what they are looking for, while delivering productivity, engagement, and high performance to the organization.

Research shows that companies with higher standard deviations in compensation have 15 to 20 percent greater performance when measured by revenue and profit growth.
SOURCE: Harris, Stacey and Jones, Katherine. Total Rewards as a Strategic Talent Management Tool. Bersin & Associates. May 2011.
Employees’ individual results are comprehensively calibrated against their peer group and evaluated on defined criteria, including:

·         Performance relative to objectives
·         Job-scope delivery
·         Demonstration of leadership competencies
·         Living the company’s values
·         Personal development
Although differentiation and calibration may put front-line managers in the middle of delicate conversations with their direct reports regarding pay issues, the right training and data can prepare them to play their role.


There are many variables that go into evaluating employee compensation — too many for an Excel spreadsheet to handle well. Ideally, compensation in your organization should consider several types of data, including:

·         External compensation market data
·         Supply and demand of different talent segments
·         Allowances for location and geographic variance
·         Economic market conditions
·         Corporate or organizational culture and conditions

SOURCE: Harris, Stacey and Jones, Katherine. Getting Compensation Right: The Value of Compensation Analysis and Planning Tools. Bersin & Associates. April 2011.


Offering transparency to total compensation, benefits, and rewards will serve companies well by giving a clearer picture of the employee to their manager and providing the employee with an understanding of the scope of true benefits accrued from the organization.

SOURCE: Harris, Stacey and Jones, Katherine. Total Rewards as a Strategic Talent Management Tool. Bersin & Associates. May 2011.

Gain Employee Buy-in
Your company’s compensation program may initially run like a well-oiled machine, but even the most
Structurally sound programs need continual reinforcement. For starters, managers and employees both benefit from frequent communication regarding compensation. Let’s face it — every employee thinks they are an expert at evaluating how their base pay compares with the external market. Compensation management is a complex business practice — part art, part science — and your compensation strategy may fall short if it’s not communicated accurately, honestly, and often.
Research shows that employees have a more favourable view of programs they understand. Improving your communications efforts can have a greater effect on program utilization and satisfaction than making programs richer — and at a much lower cost.

Are High-Performance Organizations Doing Anything Differently?

Who Are the High Performers?
For this study, “high performing” or “The Best” organizations are defined as those that achieve the highest levels of: Revenue against objectives, Innovation, High employee engagement. Using this definition, we found 150 organizations in our study sample, representing approximately 20% of the total number of participating organizations. Those that did not meet all three criteria are defined as “The Rest.”

The survey results do show two major similarities between “The Best” and “The Rest.”

1. High-performing companies and the rest identified the same programs  are most important for attracting and retaining talent, including base pay, challenging work, culture, health care benefits, etc.
2. All companies identified similar planned investment allocations in human resource programs, from retirement to pay. Survey results show that high-performing organizations do five things differently from “The Rest.”

Articulate strategies and goals
Balance more inputs for decision-making
Connect to the business and employees
Define effectiveness differently
Earn better outcomes

With this framework (refer to Figure-1), the emphasis shifts from providing access to rewards as well as basic rewards to using rewards to drive behaviour (contingent rewards) and those rewards that are going to set you apart (differentiators). In the end, these are the rewards that will create the greatest return on your investment

When we ask what leadership wants from total rewards, the shift toward a total rewards framework becomes even clearer. Leaders want:

• To manage rewards as a portfolio vs. set of programs
• More open communication to employees
• More performance-based benefits and rewards
• To be open to new and innovative ideas on program design to differentiate in the marketplace
• To continue to centralize design/administration to manage efficiency and cost.

SOURCE: TowersWatson Total Rewards Strategy-21st Century report
A total reward statement can help organisations maximise the return on their reward investment by ensuring that employees understand all the components within their package, together with the value of them.

Typical spend on the benefit elements of the reward package accounts for 20%-30% of salary expenditure. A recent survey showed that 78% of employees estimated the cost of benefits as less than 10% of salary.
Total reward statements will help increase the perceived value of the package on offer.ƒ A statement makes employees aware of the total value of their reward package and so may discourage them from moving elsewhere for a small increase in basic salary.ƒ
Stepping up benefits communication effort is a relatively inexpensive exercise when compared to the cost of providing the benefits themselves or direct and indirect costs of staff turnover.

Sends a positive message to staff: “We care about you”.

Hay Group can design total remuneration programmes that can help you:


·         align the value of the total reward programmes with individual performance, business performance and work culture
·         provide a competitive and differentiated total reward package, one reflective of the internal and external value of work
·         ensure the external competitiveness of the total reward programme, so that the level and mix of remuneration is positioned against the right comparator groups, at the right levels
·         develop reward programmes that most cost effectively meet the motivational and retention needs of employees
·         ensure employees have buy-in and understand new programmes, which in turn, will increase employee commitment/engagement
·         ensure line managers fully understand the programmes and can lead in implementing them
·         align people costs with business results