20 Aug “Total Rewards Strategy”: What is it and Why is it Important?
By Tom Wilson (Adapted from a chapter, authored by Tom Wilson, of an upcoming book and published by McGraw Hill).
To understand what a total rewards strategy is, let’s break it down, one word at a time.
First, let’s talk about REWARDS. Rewards are what people receive that is meaningful to them for doing something in your workplace that is valuable to the company. That behavior-reward formula can be as simple as an employee receiving a salary for showing up to work or as complex as an employee developing a new product design and receiving accolades, bonuses, stock awards or celebrations commensurate with the achievement. The more the employee achieves, the more significant the reward.
By TOTAL rewards, we mean everything that is associated with rewards. In most cases, rewards are extrinsic; given based on something that someone has done. But rewards may also be felt internally (or intrinsically) by the employee – they know that their work is good and they feel valued for what they have accomplished. There are a variety of external sources of reward, including salary (and an increase in pay), an incentive award, a commission payout, a promotion, a stock award, a trophy, plaque or certificate, or public or private comments or appreciation by someone the employee respects. Benefits are also considered an element of total rewards and may include sharing the cost of health insurance. Income protection (in the form of life and/or disability insurance), savings accumulation (401k or deferred compensation) or the opportunity to take advantage of additional services like company product discounts and concierge services. Employees can also be rewarded with opportunities related to the performance of their job, like greater authority, a larger budget, broader responsibilities, a new job title or increased stature within the organization. There are many types of rewards in a variety of forms that can come into play when a company considers a total rewards strategy; all of them designed to reward employees for doing the work most valuable to the organization.
A STRATEGY is a plan, playbook or conceptual framework that compels action. A business strategy focuses people on taking a critical action that will accomplish a set of goals or objectives. A new product strategy brings to the market something intended to add value, meets a need or creates a competitive advantage. Implementation of the strategy is the basis for success of the product –the strategy provides the guidance for decisions and actions. The role of the strategy is to help focus goal setting, guidelines, policies, practices, behaviors and investments.
So these concepts taken together: a TOTAL REWARDS STRATEGY is a meaningful statement that defines the purpose requirements and desired features for how the organization rewards its people for doing what needs to be done to fulfill its mission and achieve its objectives.
Fundamentally, this means that an effective total rewards strategy should:
- Reinforce the core mission, values (or culture) and critical success factors of the organization
- Define what are (or will be) the key elements needed to create a strong competitive advantage in the marketplace for talent
- Provide important clarity and guidance to decision-makers so they can assess the effectiveness of current programs and practices, determine what is needed to improve their effectiveness, and answer “why” a particular program is designed or functions in a particular manner.
In crafting a total rewards strategy, it’s important to use language that influences decisions and actions and reflects a common framework for the organization. The strategy becomes effective when it is successfully translated into action through policies, programs, systems and practices. The result is simple: an efficient allocation of resources and capabilities to influence desired behaviors (and performance) of the people most critical to the success of the organization.