Basics of Total Rewards

Total Rewards Objectives

Let’s look at how total rewards today differs from historical practices including the following:

• Competitiveness
• Motivation
• Performance
• Self-service and workflow
• Cost control
• Internal equity
• Cost-benefit efficiency
• Tax considerations
• Capital accumulation
• Social concern
• Compliance

Competitiveness

Organizations today often cite “being competitive” as their primary total rewards goal and place less emphasis on 100% base salary programs as compared to organizations in the past. Instead, they supplement their base pay programs with performance-driven pay such as annual incentive plans, profit sharing, and equity plans that extend employee eligibility throughout the organization.

Pure market pricing may also be used to ensure high-demand jobs in a competitive marketplace reflect actual market value on a job-by-job basis.

Motivation

Many organizations utilize total rewards to shape individual and group behaviors. While traditional organizations, for the most part, still use bureaucratic, annual individual performance assessments and reward only a few individual contributors, new economy organizations are far more likely to reward and recognize individual, team, and/or organization-wide performance and achievements, rather than just some individuals.

High-growth organizations today are likely to utilize an annual incentive plan or team-based pay practices including goal setting, key metrics, and even performance achievements based on company-wide, team, and/or individual results. Performance management programs include ongoing performance feedback and frequent check-ins to assess effectiveness on the job rather than annual performance appraisals that look at performance over the past year and don't provide current, ongoing support and appraisal. Yet, it is still most common to use performance ratings. Organizations today are shifting away from forced ranking of employees and bureaucratic performance management programs from the past.

Self-Service and Workflow

Oftentimes, new-economy organizations use administratively simple total rewards plans and leverage technology with “off the shelf” software solutions that utilize self-service and workflow capabilities. Larger organizations now commonly use enterprise-wide software systems, which include comprehensive human resources management systems. Plans used by new economy organizations often are more intuitive and are easily explainable compared to the complex pay schemes and highly customized workflows of traditional organizations.

Cost control

Total rewards plans can also be designed to control costs. For example, new economy companies use incentive and bonus compensation plans that pay out only when profits or sales are achieved.

In general, new economy organizations may pay less fixed cash compensation because of:

• lower base pay levels.
• higher variable compensation payouts.
• higher health benefits costs.
• much higher equity compensation.
• greater use of independent contractors, outsourcing, and globalization