In the early 1960s, a group of Monks in Thailand decided to move a ten-and-a-half-foot clay statue of Buddha to a new temple. As they were moving it, the clay cracked, revealing something shiny. A monk chipped away at the crack, revealing a Buddha of solid gold. It is speculated that earlier monks, killed in war, encapsulated the Buddha to hide it from the Burmese soldiers, thus concealing the true identity of the Buddha until it was uncovered hundreds of years ago. Like this story, most individuals only see what appears on the outside—and rarely chip away to get to the shiny center. In many ways, Total Rewards programs can be like the clay Buddha, but an entirely shiny program can emerge with some appropriate chipping. How can your Total Rewards program emerge as one that motivates, retains, and empowers employees?
The most effective Total Rewards programs are those that fully understand, analyze, and leverage data for excellent Return on Investment. This is why it’s essential to measure metrics to know how well a Total Rewards program is working. By identifying, monitoring, and analyzing specific metrics, your HR team can leverage insight and develop a Total Rewards strategy that is more responsive to the market’s demands and more helpful in attracting and retaining top talent.
Measuring What Matters
Total Rewards supports several key business goals: enabling business strategy, promoting fairness and equity, boosting employee engagement, and differentiating awards to drive continuous improvement and high performance. Designing a program requires figuring out how to measure all of those—in other words, identifying the metrics that can accurately assess if those goals are being met and how they connect with Total Rewards.
Metrics are also crucial in a Total Rewards landscape evolving rapidly to focus less on base compensation and more on other elements. According to Strategy + Business, the importance of financial compensation has declined 11% over the last ten years. Instead, employees are looking at other benefits: medical benefits, wellness perks, childcare, career development, and flexibility or work/life balance support; the importance of those benefits has doubled (or even tripled) over the same period. As your Total Rewards strategy shifts to this new focus, it’s vital to implement metrics that capture how these more fluid concepts – like career development or overall wellness – are succeeding.
Without proper metrics, making informed decisions and demonstrating the value of HR initiatives to stakeholders can be challenging. These metrics can also operationally define what some describe as an organization’s “compensation philosophy.” Think of this philosophy almost as your organization’s mission statement, as seen through the lens of employee compensation. It reflects your vision and overall strategy, as well as your values and priorities. Just as your approach to other elements of business reflects those priorities and strategic goals, your Total Rewards approach should be driven by the culture you want to create (i.e., what kinds of incentive structure do you have? Do your “perks” focus on in-office upgrades, or work-life balance support?)
Nearly any metric can be interpreted through the lens of Total Rewards, but CHROs generally focus on these four categories.
These costs are related to the budgetary impact of recruiting, hiring, retaining, and losing employees. Cost per hire can help you gauge how much your organization spends to bring new talent on board, and it can be calculated by dividing the total recruiting costs by the number of finalized hires.
Total Rewards contribute to retention, so it’s also essential to look at turnover costs, calculated by adding up the hiring and training replacements for each departing employee. High turnover can indicate low employee satisfaction, which could indicate a pressing need for a Total Rewards overhaul.
A robust Total Rewards program helps to motivate exceptional performance, while lackluster initiatives are unlikely to inspire anyone to go above and beyond. Keep an eye on productivity, measured by output per employee over a given timeframe, since it often correlates with employee satisfaction levels. Similarly, work quality can demonstrate your employees’ commitment—or lack thereof—to produce exceptional work. Different industries will have different quality control metrics, so choose the most appropriate for the products or services you provide.
The success of a Total Rewards program is often evident in employees’ level of satisfaction. Utilize specialized software, employee surveys, or solicited feedback to gauge staff satisfaction levels and whether existing incentive structures have the desired effect. It’s also worth looking at a “net promoter score,” or a survey asking how likely employees are to recommend the organization to others. Happy, engaged, and loyal employees want to spread the word positively, while a lower score can reflect dissatisfaction with how things are.
Total Rewards is just one part of a multifaceted strategy designed to make your organization as successful as possible through alignment with overall business goals. You can get a sense of this by comparing KPIs before and after a round of changes to the Total Rewards program. Best practice calls for this to be repeated after any future changes to determine which strategies have the most positive impact.
Implementing Metrics: Best Practices
Whether starting from scratch or tweaking an existing system, these best practices help HR leaders ensure that they are getting the most actionable insight out of their metrics:
- Start small: Begin with one or two key metrics, focusing on the areas in which you are most interested or where you have concerns, and build from there.
- Use technology: Leverage HR analytics software for tracking and reporting metrics.
- Regular reviews: Don’t let Total Rewards take a back seat to other issues—make it a point to review metrics and make adjustments every quarter.
- Engage stakeholders: Keep communication open between HR, executives, and other key stakeholders, as well as between leadership and employees.
Tracking the performance of a Total Rewards program requires monitoring various metrics, but it also can provide critical insight to ensure you’re getting the most for your investment. Start implementing these metrics now, and you’ll find your shiny Buddha—a program that better aligns your Total Rewards programs with your overall organizational goals.
By Ruben Moreno
About the Author
After a 25-year career in Corporate Human Resources and HR Executive Search, Ruben Moreno and his two partners co-founded Blue Rock Search based on a simple but ambitious vision of creating a firm that would “Change Lives and Organizations One Relationship at a Time.” Ruben leads the Blue Rock HR & Diversity Executive Search practice specializing in the identification, assessment, recruitment, and onboarding of Chief HR Officers and Chief Diversity Officers and their respective teams — inclusive of leaders in Talent Acquisition, Total Rewards, HRBP’s, Learning & OD, HR Technology, HR Operations, and HR Analytics. Ruben has helped place hundreds of HR Executives and built deep relationships within the CHRO community across multiple industry verticals. His clients consider him a trusted partner who takes the time to understand their business and add value beyond executive search.