3 Key Considerations for Your Total Rewards Strategy

By Niranjana Harikumar 
18/02/2013

Total Rewards refers to the unique way in which an organization can attract, retain and motivate employees. This philosophy transcends the traditional domain of monetary “rewards” (“compensation”) and instead takes a holistic view of the monetary and non monetary benefits that the organization offers its employees in return for their time and effort. As the “war for talent” shows no sign of abating even amidst the economic slowdown, conversations about rewards can no longer be confined to “meeting the market” or to salary increases that happen annually on autopilot. Today, ‘Total Rewards’ has evolved as a complex and multidimensional area including a fine balance between individual employee needs and the organizational realities.

The generational, gender and cultural diversity of today’s workplace entails that a homogenous reward strategy may no longer deliver the best results. Each employee demographic has vastly differing beliefs, needs and values. The HR practitioner and the line manager is, therefore, entrusted with the rather daunting responsibility of understanding the dramatically different working styles and expectations of each of these employee populations in order to ensure that the organization’s total rewards framework caters to their needs effectively.

Some key implications of the impact of a diversity-rich workforce on Total Rewards implementation are listed below:

1. One-Size-Fits-Allapproach to rewards will not work anymore.
Employee demographics at the workplace today show unprecedented levels of diversity across age, gender, nationality, life stages and a host of other factors. Each of these employee populations has vastly differing expectations towards rewards and is motivated by entirely different factors. Thus, identical reward investments will provide vastly differing returns in terms of perceived value and employee engagement across these different populations. Therefore, a key imperative for the HR practitioner is to customize reward strategies to meet the needs of these different groups in order to ensure that the rewards spendis distributed optimally.

For instance, literature on “life stages” identifies four career life stages that employees go through during their organizational lifecycle. These are Establishment (typically from ages 21-26), Advancement (typically from ages 26-40), Maintenance (typically from ages 40-60) and Withdrawal (ages 60 and above). Each of these career life stages has vastly differing value systems and needs.

Similarly, there is a plethora of literature that points out the characteristics and stark differences in the working style amongst the Veterans, Baby Boomers, the Gen Xers and the Gen Yers. Also, as more and more women enter the workforce, organizations will also need to customize their total rewards to accommodate expectations of women at various life stages. 

2. HR will don the marketing hat to “sell” the Total Rewards “product” to employees.

Just as the marketing function focuses on attracting and retaining customers, by understanding their current needs and identifying future needs, similarly, HR will need to think of current and prospective employees as customers. Thus, for instance, total rewards can be looked at from the lens of the 4Ps of Marketing – Product, Price, Place and Promotion in order to market them effectively to the “consumers” – i.e.,current and prospective employees. The “product” of course will be the total rewards framework in this context – therefore, organizations that have products that meet the needs of the current and prospective employees most closely will be able to attract and retain them better. Identifying the various employee “segments” that exist, tailoring and “packaging” its reward “product” to cater to the specific needs of various employee populations will be of utmost importance. HR will, therefore, need to engage with its “customers” deeply and identify their needs, lifestyle requirements as well as latent motives or beliefs that can then be used to shape and tailor the organization’s total rewards framework.

3. Employees will control their own tailored total rewards.

In a world of personalization and customization, standardized rewards will not achieve the desired impact. In ideal world, total rewards packages would be tailored to the personal preferences and needs of the individual employee. In practical terms, organizations can choose to develop a broad bouquet or menu of total reward components based on the needs of the different employee populations within the workforce. From this “menu”, employees can choose components to fit their specific preferences and lifestyle requirements. This “cafeteria” or “flex” system has been used widely with respect to monetary rewards – but there is immense scope to reapply it in the context of total rewards as well.  For instance, younger employees with fewer commitments may choose to get rid of their dependent benefits or take more holidays with a corresponding adjustment in the monetary rewards received.

Certain forward-looking organizations provide employees with a “total rewards statement” that lists down the mix of various total reward components that the employee has opted for. These could extend to work-life balance, especially, various forms of leaves or work breaks or sabbaticals, convenience benefits such as concierge services, lifestyle benefits like gym memberships etc. For instance, several organizations allow employees the option of “salary sacrifice” in exchange for more holidays. Technological innovation and employee self service portals make this kind of deep customization surprisingly feasible for most organizations.

The concept of rewards is undergoing a fundamental shift. Today, “total rewards” are expected to cater to both tangibles and intangibles. The aim of a total rewards framework is to identify a holistic reward mix that maximizes employee attraction, retention and engagement.With the level of diversity amongst today’s workforce, a standardized approach to total rewards may not result in optimal investment of the available rewards budgets. Different employee populations are motivated by different factors and, thus, place differing value on various rewards components. The key to optimal returns on investment in total rewards lies in investing the finite resources in a way that generates the highest possible perceived value for employees, based on principles of flexibility and understanding the diverse needs of the workforce.

Understanding the demographic forces in the organization and tailoring the total rewards framework as per the personal needs, lifestyle requirements and values of the differing employee populations will be of utmost importance. Organizations will also need to market their total rewards better amongst current and future employees.

Niranjana Harikumar is an organizational development consultant who has worked with various organizations in designing and implementing competency-based assessment and development programs for different employee populations.