Employers need to convey the total value of their reward package, says Nicola Sullivan

Total reward is a concept that looks beyond the standard forms of remuneration, such as salary, and recognises the role that many of the less tangible aspects of an employment package can play in motivating and engaging staff. These factors include non-cash benefits, training and career development, as well as the workplace culture and working environment.

In his forthcoming book Managing Total Rewards, due to be published by Kogan Page in April 2010, author Michael Armstrong states: “”Reliance is not placed on one or two reward mechanisms operating in isolation. Instead, account is taken of every way in which people can be rewarded and obtain satisfaction through their work. The whole is greater than the sum of its parts. The aim is to maximise the combined impact of a wide range of reward initiatives on motivation, commitment and job engagement.”“

When total reward first emerged as a concept in the 1990s, it challenged some of the traditional practices and philosophies behind compensation and benefits, which, according to professional association World at Work, was based largely on a one-size-fits-all approach. As employers began to see that strategically-designed, multi-faceted benefits programmes could give them an edge over their competitors, total reward gained further credence. Today, it is often heralded as a powerful tool employers can use to improve their business results and performance, largely by helping to attract, motivate and retain talented staff.

However, the precise definition of what constitutes total reward can vary. A number of HR consultancies have developed their own working models and definitions of total reward. For instance, Hay Group’s model focuses on an organisation’s values and ability to inspire its employees, the quality of work being produced, and opportunities for staff to grow. It also counts an enabling environment, tangible rewards and work-life balance as key aspects of a total reward package. Meanwhile, Towers Perrin’s total reward model comprises pay, benefits, learning and development, and the working environment.

Helen Murlis, a director at Hay Group, says: “”Major employers, not just in the UK but around the world, are looking at total reward. Whether employers are in the public or private sector, they need to include total reward in their thinking, especially if they want to run HR in a more sophisticated way and do talent management properly.”“

Corporate objectives An effective total reward strategy also enables an employer to merge corporate objectives and needs with those of individual employees, says Charles Cotton, reward adviser at the Chartered Institute of Personnel and Development (CIPD). “”Having a total reward strategy aligns what the business needs to achieve with what employers need people to achieve,”” he says.

According to the CIPD’s Annual reward management survey 2009, one-fifth of respondents have adopted a total reward approach, and a further 22% plan to do so this year.

But total reward is not for the faint-hearted due to the work involved in setting up a strategy. When doing so, reward professionals should liaise with key decision-makers across their organisation, such as finance directors. This cross-departmental approach is essential to gain an understanding of the firm’s business objectives, key performance indicators, staff demographics and work culture.

Employers will also need to examine their existing remuneration policy to establish the extent to which it is aligned with business aims, as well as HR and reward strategies. To get a good understanding of which benefits staff are most likely to value, employers could also conduct a survey. This is important because the perks that staff actually value could differ significantly from those that employers see as valuable, says Murlis.

Failing to understand this could see employers waste time and resources designing a strategy that ultimately fails to address the issues that actually motivate employees. When designing a total reward strategy, employers also need to ensure it is segmented to cater for a wide range of lifestyles and job roles within the workforce. “”You have to start talking about what employees want and not just a one-size-fits-all offer because the people that come and work in your call centre are not the same people that come and work in your hospital,”” says Murlis.

To get the most value from their total reward strategy, employers must ensure staff are aware of the total value of their employment package. Initially, this can typically be achieved by simply issuing total reward statements, either in paper form or online. Statements outline the value of traditional benefits, such as pensions, salary and share schemes and, in some cases, can also include details of less tangible perks, such as training, health and wellbeing initiatives, and subsidised refreshments.

Matt Waller, chief executive officer at Benefex, says: “Total reward statements provide an invaluable opportunity to communicate the value of the entire employment proposition. For maximum positive impact, focus on ensuring that total reward messages are embedded throughout the recruitment process and on an ongoing basis.”

But informing employees of the total value of their package can also have negative side-effects. Charlie Carrick, sales director at JLT Online Benefits, says: “The problem is the employee can become more empowered than the employer. You give someone total reward statements and they look it and say ‘I am a bit disappointed and you have just reminded me I want a pay rise. I think I am worth more.”

Unions, which have traditionally focused mostly on pay, can also be tricky to negotiate with when it comes to total reward, says the CIPD’s Cotton. “Sometimes unions have been concerned that employers are using total reward to deflect attention away from pay, but what total reward indicates is that there are other costs to the employer as well as pay.”

Appease unions Highlighting the value of benefits may also make staff and unions more likely to fight for the same spend in future, says Cotton. The flip side is that, at a time when pay freezes are common and cuts to benefits are a reality for many employers, they may be able to appease unions with softer aspects of the total reward package. For example, firms that are not in a position to implement pay rises could mollify unions by offering more training opportunities for staff, says Cotton.

To get the most out of their total reward strategy, employers may find communication can play dividends. Darren Laverty, a director at SecondSight, says employers should consider various forms of communication, including face-to-face presentations. “It is important for employers to have total reward appreciation and you have to go to another level to get the full appreciation out of it.”

But it is important to remember that communication and total reward statements are just one strand of total reward. To be effective, a total reward strategy needs to drive both human resource and business strategies.

At a glance

  • Total reward looks beyond standard forms of remuneration, such as pay, and recognises the important role many less tangible elements of the employment package play in motivating and engaging staff.
  • Communicating total reward effectively is essential for employers to obtain the desired return on investment. Many organisations use total reward statements to demonstrate the value of their package to employees.
  • When designing a total reward strategy, employers must ensure they cater for a wide range of lifestyles and job roles within the workforce.
  • A cross-company approach is essential to gain an understanding of the firm’s business objectives, key performance indicators, employee demographics and work culture.
  • Employers that are not able to implement pay rises can seek to mollify trade unions with other elements of total reward.

Case Study: Hyde Group

Hyde builds pathway to flex Housing firm Hyde Group launched total reward statements to pave the way for flexible benefits and help staff understand the value of its total reward offering.

Paper statements were rolled out to its 1,600 staff in March, which include details of benefits, such as pension, company car allowance, bonus, annual leave and healthcare perks.

Sarah Bissell, head of reward, says that, as well as acting as a stepping stone to flex, the statements, provided by Jelf Group, were designed to retain, engage and attract staff. Xafinity Creative helped to design and distribute the company-branded statements.

“This is the start of a new approach to pay and reward,” says Bissell. “The longer-term aim is to introduce flex and this is a step towards that. We are starting to raise awareness of total reward, so when we take the next step to flex, it all makes sense to people.”

“We also wanted to make staff aware of the value of their total package. All the unseen monetary benefits, such as employer pension contributions and life assurance, can be worth up to 30% of the basic salary figure for some.”