The total rewards function has always been a key aspect of HR, but it can also be one of the most complex. Determining how to best compensate employees for their work, while also encouraging growth and retention and keeping costs under control, requires not just data, but a deeper understanding of what that data says. Today, total rewards is shifting focus to a more individualized, creative way of thinking.
Compensation Is No Longer the Determining Factor
Historically, salary has been the centerpiece of total rewards and the priority for employers and employees alike. Today, however, that all seems to be changing. According to data from Strategy + Business and TrueChoice Solutions, the relative importance of financial compensation has declined by 11% over the past ten years, while the importance of other benefits (medical and dental, child care, and wellness, to name a few) has doubled, and the importance of career-focused benefits like career development and training have tripled.
To be clear, pay is still a major factor in recruiting, especially in today’s competitive talent marketplace. However, it’s not just about the numbers themselves, but also the sense of fairness and transparency around the whole process. One survey found that whether employees understand the processes and rationale behind pay decisions can have five times as much impact on their satisfaction with their employer as the actual salary number they are paid. When companies fail to provide a reason for their pay decisions—or provide reasons that employees find unsatisfactory—they’re more likely to lose out on top talent. Nearly three quarters of employees who were given either no reason, or a reason they don’t believe, for being denied a raise report being likely to seek new jobs in the next six months.
Compensation does matter, and other “perks” shouldn’t be used to compensate for insufficient or less-than-competitive pay. With that being said, however, there’s a new approach to total rewards, and it’s one that brings more individualism to the process.
Diving into Customization
The common approach to garnering employee feedback on engagement and total rewards is to put out a survey. When that data is simply viewed and not engaged with, it fails to paint a full picture of employee preferences and does not lead to effective total rewards strategies.
Instead, a fresh approach to total rewards would pair benefits that match employee priorities with the ability for individuals to have more control over their own compensation and benefits. When employees feel they are in the driver’s seat, they are more likely to value those benefits, and they’re more likely to feel good about having a total rewards package that truly reflects their priorities.
Strategy + Business’s research suggests the potential for success with a “bundle” style of total rewards customization. Outside of basic offerings, like compensation and health care, employees might be able to choose from a “menu” of other benefits (within reason), whether that’s a transportation allowance, a flexible work schedule, home office support, and so on. The options themselves should be selected to reflect the overall preferences of the workplace, as well as financial realities, company goals, and corporate values.
Consider a few findings from the S+B survey:
- Employees may be willing to trade 20 to 25% of their salary for a much better work–life balance.
- The perceived value for employees of supplemental health benefits can be 1.5 times the actual cost of providing those benefits.
- If employees perceive their company to be living up to its “sense of purpose,” they may consider that to be worth as much as 20% of the total reward.
One area that most employees can agree on? The value of career development. A survey from PwC Australia found that career progression opportunities and professional development are the second-most valued reward, second only to “flexible and variable pay”—another indication of the importance of individualized, customized rewards. Upskilling, training, mentorship, and opportunities for promotions are highly valued by today’s employees, and a total rewards strategy that spotlights them is likely to be more successful.
Benefits for Everyone
Offering more well-tailored total rewards may seem like a lot of legwork for uncertain results, but that’s not necessarily the case. Two case studies from S+B demonstrate how a pair of companies restructured total rewards and actually decreased compensation costs while increasing retention, employee engagement, performance, and more. Additionally, a thoughtful strategy can keep costs under control by offering “trade-offs” (pick this benefit or that benefit) and by not directing precious funding towards elements that aren’t actually that popular or effective. Attracting and retaining top talent, while improving results and lowering costs, is “the dream” for most organizations, and it’s possible with the right strategy.
Meanwhile, employees who are satisfied with their total rewards options can find more meaning and satisfaction in their work. They’re more likely to feel good about what they’re doing and what they’re getting in return, and they’ll benefit in tangible ways across multiple areas of their lives. People have changed their relationship with work over the last few years, and they’re looking for it to just be one part of their whole selves, not the defining factor. By crafting total rewards strategies that reflect these changing priorities, organizations can find themselves in a competitive position for long-term success and satisfaction.
By Ryan Butler
About the Author
As a Director of Executive Search, Ryan specializes in the identification, assessment, and placement of Human Resources leaders with a particular specialty in the Total Rewards function. Ryan has successfully placed Total Rewards leaders for global, publicly traded clients as well as privately owned organizations across multiple industry verticals. Ryan’s clients and candidates view him as a highly consultative search partner with an in-depth understanding of the Total Rewards function.