Basics of Total Rewards

NEW-ECONOMY TOTAL REWARDS vs. TRADITIONAL PRACTICES

How Practices Evolve

The lifecycle of a business greatly influences operational practices due to the revenue and profitability of the organization. A business lifecycle includes the following stages:

• Start-up
• Growth
• Maturity
• Decline

Many traditional, mature businesses, which may have been operating for over 50 years, are focused on maintaining product share and managing costs while in a cycle of slow or even declining revenue growth. This is very different from high-growth, newer organizations where revenue growth can be in the double digits or even higher. The biggest difference between mature businesses and high-growth organizations is how they define and operate in the workplace.

Mature and declining businesses may operate with practices from the distant past. These organizations may be hierarchical and bureaucratic with an internally focused job structure. Many manual processes may still exist within these companies with limited investment in new technologies. Work design can be narrow, specialized, and compensation programs systemized and inflexible. This inflexibility creates a situation where compensation practices of the past exist in the company. Fixed compensation may exceed the marketplace.

New-economy Organizations

Characterized by knowledge workers, new-economy organizations are flatter, less structured, and more flexible. They do not set pay based on internal practices but align pay programs with what competitors (the relevant external labor market) pay for comparable jobs while taking into consideration their requirements for pay equity and social responsibility.

The total rewards philosophy and corresponding programs are more broadly applied across the organization with all employees participating in short- and long-term incentive plans, such as annual incentives and equity plans, that recognize performance and organizational growth.

New-economy organizations tend to be smaller and leaner, although some, like Amazon, have grown very large. Fewer employees are needed due to the use of enterprise-wide technology that has increased productivity in the workplace. Employees are capable of performing a broader variety of essential tasks that require a greater “span of responsibility.” Career growth within an organization can occur not just vertically but also laterally. There is greater use of independent contractors to meet the needs of a business.