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SUMMARY
Total rewards is a key tool used by organizations to attract and retain talent. As the U.S. economy has transitioned from traditional manufacturing to more organizations that employ knowledge workers, these new economy companies have changed total rewards. Today, companies want their total rewards plans to be competitive with their peers and the majority use market pricing as the foundation for setting pay. There is also a greater emphasis on incentive pay and using equity plans and profit sharing not just for the top executives but for all levels of employees. And as benefits have become more expensive, there has been a move to greater cost sharing.
The most common total rewards elements are the following:
- Base salaries
- Sales incentive plans
- Short-term incentive plans
- Long-term incentive plans
- Company-wide benefits
- Medical plans
- Dental plans
- Long-term disability plans
- Life insurance
- Retirement plans (qualified and non-qualified)
- Perquisites
A big shift in equity compensation has been from stock options to restricted stock plans. Changes in accounting rules and the volatility of the stock market have made stock options less popular and today, fewer than 20% of companies offer them.
Once the standard, defined benefit retirement plans have given way to defined contribution plans such as 401(k)s. Top executives receive most of their retirement compensation from deferred compensation plans that are non-qualified but are not limited by regulations like those imposed on qualified plans.
Companies are investing in Human Resource Information Systems (HRIS) to automate and streamline workflow. These systems are also typically designed to communicate a company’s benefit programs to employees and to easily share important information with them.
Total rewards continues to evolve as the needs of employers and employees continue to change. A recent example is how organizations have had to establish new policies regarding remote work and the best way to compensate employees who are able to work that way.