5 Critical Success Factors in Implementing a Total Rewards Strategy
By Niranjana Harikumar
As the workplace context metamorphoses from traditional structures and takes on a newer, unprecedented shape, the nature of the employer-employee relationship has also undergone a sea change. The world of lifetime employment and unflinching loyalty to a single employer no longer exist. In the face of turbulent change, a “static” approach to rewards will no longer work. Recessionary trends, aggressive competition and increasing cost pressures mean that organizations have to take a hard look at their current labor cost structures. A rewards system that is wholly dependent on periodic increases in pay and benefits will not be sustainable in this new context.
Thus, many modern organizations regard pay and benefits as just one part of the larger context of a total rewards strategy that encompasses all aspects of the employee value proposition from growth opportunities to a motivating work environment (recognition, flexible hours etc.). This approach gives organizations a flexibility to fine-tune or vary their total rewards mix depending on the specific internal and external conditions prevailing at the time, whilst ensuring attraction, motivation and retention of employees. At the same time, this approach ensures strategic alignment between the rewards approach and the organization’s business strategy and business results. Ultimately, a total rewards strategy is about getting the right proportion of rewards to the right people at the right time in a way that is aligned with the organization’s business needs.
Components of a Total Rewards Strategy
A Total Rewards Strategy looks at both tangible and intangible benefits offered to an employee by the organization. Many organizations use below three key components to build a holistic total rewards strategy.
This is the “foundational” component of a total rewards strategy and encompasses the “traditional” reward components of base pay, short-term incentives and long-term incentives. No longer is this considered the key to employee attraction, motivation and retention. Today, this component is seen as just one of the elements of a total rewards strategy.
The erstwhile philosophy of “equal pay for equal work” has today evolved into a “pay for performance” approach that emphasizes on performance linked rewards. In a world where there is huge competition for the high potential, high performing “superkeepers” in your organization, performance differentiation becomes critical. Thus, the organization has the opportunity to recognize differences in contribution not just through pay alone but also through privileged access to opportunities such as challenging assignments or special leadership development programs.
This category is often ignored by many organizations while overemphasizing on the more “tangible” basic and performance reward categories. However, there is clear impact that ignoring this critical category can have real risks for organizations. On the positive side, if a consistent employee experience is consciously shaped at every employee touch point after a thorough evaluation of employee needs and drivers, then this category has the potential to create a dramatic positive impact.
5Definitive Success Factors
In order to successfully implement a total rewards strategy, the HR practitioner needs to keep the following five factors in mind:
1. The total rewards strategy needs to be rooted in a sound understanding of the organization’s business context and short term/long term business objectives.
The starting point for a total rewards strategy is a clear understanding of the organization’s unique business strategy, context and objectives. HR practitioners will do well to build an understanding of external factors such as the labor environment, political, regulatory or economic changes. This is in addition to a comprehensive understanding of the organization’s short term and long term business goals, performance metrics, critical capabilities required to be developed for competitive advantage as well as behaviors and attitudes to be shaped. The total rewards strategy is a great opportunity to drive these behavioral changes and strategic shifts within the organization. Ultimately, what the organization chooses to reward will drive employee behavior and performance.
2. The organization’s total rewards philosophy, guiding principles and objectives must be clearly articulated.
Many total rewards initiatives fail because of a lack of focus and hazy objectives. With the business context and its specific objectives, an HR practitioner needs to develop guiding principles to offer a framework for shaping a total rewards strategy over time. Some aspects which the philosophy and guiding principles should encompass include competitive positioning, performance differentiation vs. uniformity, cost considerations, flexibility and choice offered etc. Care should be taken to ensure that the total reward strategy covers the various categories comprehensively and is holistic. At the same time, the various categories and components must fit together and complement each other, rather than be force-fitted disparate elements.
3. The communication of the total rewards strategy principles needs to be done well
A total rewards initiative is a large-scale organizational change which requires ongoing communication and employee involvement to be successful. Often, organizations have powerful components in their total rewards strategy, which fail to achieve real results simply because employees may not be aware of them. The more employees know about the various components of the total rewards strategy and how they are operationalized, the more likely they are to be satisfied by it. Many organizations choose to communicate to each individual employee details on the rewards received by them, thus making total rewards personalized. Rather than merely rely on policy documents, many organizations are educating their line managers to have conversations with employees about the total rewards offered. The organization’s intranet and internal social networks can also be leveraged for this purpose.
4. There should be a strong leadership buy-in for the total rewards program.
HR practitioners need to bear in mind that a total rewards strategy is not an “HR” initiative. It is a powerful business initiative that can make or break employee performance and commitment to the organization. Thus, strong and highly visible leadership buy-in is an imperative for a successful implementation of a total rewards program.
5. Set success measures and periodically review total rewards strategy for continued alignment to business objectives.
In line with the total rewards initiative’s identified philosophy, guiding principles and objectives; an organization needs to define clear, SMART success measures which will help it ensure that the initiative stays on track. Many times, organizations treat total rewards initiatives as a one-time “rollout”. However, when the organization’s business strategy changes every few years, the total rewards strategy also needs to be reviewed periodically to ensure continued alignment with the business strategy. Thus, the focus of measurement and review should be not just on “what are we currently rewarding” but also on “what should we be rewarding”.
The total rewards strategy is a great opportunity for organizations to move towards a holistic employment proposition rather than restrict themselves to an unsustainable focus on monetary rewards and benefits. Thus, they can gain the flexibility to shape the employee experience in a wide variety of ways, based on the organizational life cycle as well as the current realities. Depending on business needs, a combination of reward components, the level of investment in them and the distribution amongst different segments of the employee population can be varied. Through this approach, organizations can powerfully influence and shape employee behaviors and attitudes.
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.