Deciding what goes into total reward strategy early on is key

Decide what total reward should include before devising a full-scale strategy, says Vicki Taylor

Total reward is gradually catching on among UK employers. According to the Reward management survey 2007 by the Chartered Institute of Personnel and Development (CIPD), 41% of organisations have a total reward strategy and 32% intend to develop one this year.

Total reward is an over-arching strategy encompassing all of the benefits that an organisation offers to staff, which can help to increase employees’ awareness and understanding of the value of their complete package. Paul Clark, head of employee benefits at Jardine Lloyd Thompson, explains: “It is about making sure that people understand the full gambit of the benefits that the organisation offers. The employer is putting a lot of value into other perks [besides salary] and it is making sure that staff can see those.”

What should be included within a strategy and how it should be communicated, however, is less clear. Martha How, head of reward at Hewitt Associates, believes there are four areas a total reward strategy should cover. The first is tangible, individual rewards such as pay and share schemes, the second is tangible collective rewards such as pensions, company cars and healthcare benefits, the third is intangible individual benefits, such as learning, development and career prospects, and the fourth is intangible collective perks such as the working environment.

“A large proportion of employers – 60% perhaps – ignore the last two categories. When they define total reward, they tend to think of all the [things] that are tangible, such as pay, but those [second and third] categories have a massive influence on whether employees enjoy working and feel rewarded. The best possible total reward strategy addresses all four elements,” she explains.

However, when using such a strategy, employers may come across problems with communicating and quantifying the value of aspects such as the working environment.

Paul O’Malley, leader of total reward consulting at Mercer Human Resource Consulting, believes that some of the more intangible elements of reward should not be included. “If you are working somewhere that has the right career development, the right opportunities, then really that is a nice environment, but I am not sure about saying that environment is a reward in itself. It gets very woolly if you begin to include things like leadership and environment,” he explains.

There seems to be a general consensus, however, that training and development should not be left out of a strategy. This can usually, although not always, be quantified in terms of money invested. “Training is incredibly valuable and often doesn’t get mentioned,” adds Clark.

The difference between a total reward strategy and total reward statements is another issue that can cause confusion. “There are two potential definitions of total reward. One is communicating everything in one go, and the other is thinking across rewards and holistic decision making which is quite different,” explains O’Malley.

Employers committed to the idea of adopting a total reward strategy should have one budget rather than separate pots for different parts of the benefits package such as pay rises, shares and healthcare. This should enable strategy and business goal alignment.

When communicating a total reward package to employees, How believes an organisation’s performance management process is key. Line managers, for example, can help staff see that a training course will enable them to meet their personal objectives, which, in turn, can help them to achieve their bonus.

While the debate over how to define total reward looks set to continue, getting employees to see the whole picture can clearly be beneficial.

What is total reward?

Despite its frequent use, total reward is a phrase that many still struggle to define. In general terms, it is a philosophy that encompasses all the benefits that staff receive from their employer, and aims to increase employees’ understanding and perception of the value of these.

An often-debated point is around whether employers should include more intangible perks such as learning and development, and the working environment in a total reward strategy.