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.”
You’re probably already aware of ‘Total Benefits’ because you will 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 I set out to explain, exactly what we mean by ‘Total Rewards’ and the effects 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 benefits (monetary and other) plus any other employee perks. These might include education and employee discounts, for example.
There is no standard total rewards package. They will vary greatly between company and even within the same organization, total rewards packages will vary by employee.
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 individuals performance. The role of an employee also determines the type and frequency of rewards.
Sales people, for example, 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.
This again varies from company to company. 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.
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 suit their current needs. They can adapt and change these to suit their changing personal circumstances. In addition as the business adds new benefits as the ways we work evolve.
The great thing about agile rewards and benefit is that it keeps 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.
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”. The gap being the difference between what employees perceive as their ‘Total Compensation’ and the actual amount an employer spends on them – their ‘Total Reward’.
The net of this gap means that 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.
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 is costs employers $millions 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 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.
Ideally, these platforms are integrated 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. Rewards that reflect the current trends and are proven in your industry to 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.
Always keep asking questions.
You then need to be sure that your ‘Total Rewards’ packages reflect the answers to the above.
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!
As a result, to keep employees, you must maintain the attractiveness of your business at all stages of your employees’ life cycles. You need to keep engaging, motivating and communicating. Internal communications plays an important role here.
After the excitement of coming on board, employees typically forget the monetary value of rewards. Instead, 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.
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 even as good as 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.
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.
Organizations can get as great a return, if not more, from non-financial rewards as they can from financial ones. Therefore, research for your rewards strategy needs to look beyond typical industry salaries to typical industry rewards and benefits.
It also 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 and the performance gains and business results match the investment into rewards.