Special report: total reward


•Total reward plays an important part in employee engagement, which in turn can make a big difference to productivity.
• It is about all the ways in which people are rewarded when they come to work: pay, benefits and the other non-financial rewards put together to make a coherent and integrated whole. ~
• Non-financial rewards include scope for achievement, recognition, opportunities for growth, career development, and working environment.
• Total reward statements (TRS) play a key role in the communication of a total reward strategy. They are often the pre-cursor to a fully-fledged total reward strategy as employers initially list pay and benefits before adding in the less tangible elements.
• A TRS helps staff understand value of their reward package better so they are less likely to move jobs for a straight salary increase without taking into account the broader benefits of working for their current employer.

Ensuring staff understand the value of all the benefits of working for your organisation, pays long term dividends, discovers Laverne Hadaway

A well thought out total reward strategy can have an important part to play in promoting employee engagement, ultimately contributing to the success of the business. Evaluating the effectiveness of an employer’s total reward offering is increasingly important in the current challenging economic environment.

“If you can get your employees to feel a connection with your company, you can get a lot more out of them. They will make decisions based on what’s right for the company, rather than ‘what’s in it for me?’,” says Lisa Page, a senior consultant at Aon.

Gary Luck, a senior consultant at Watson Wyatt, agrees. “If you optimise your reward design and deliver what your employees want and value, you are increasing their engagement. If you design your whole proposition appropriately, you can create that cycle: the employees will be happier, turnover and production will improve, which leads to customer satisfaction and retention, which ultimately impacts on the bottom line.”

The chart, How engagement drives performance, (see p31) shows the impact of employee engagement on the financial performance of businesses. It was based on research conducted by human resources consultant Towers Perrin among 50 global companies some with highly engaged staff, others with employees with a low level of engagement.

So what exactly is a total reward strategy? It is a reward strategy that goes beyond mere pounds and pence to look at everything an employee receives in exchange for working for a particular employer. HR consultant Michael Armstrong explains the concept: “Total reward is about all the ways in which people are rewarded when they come to work – pay, benefits and the other non-financial rewards – put together to make a coherent and integrated whole.”

These non-financial or intrinsic rewards include factors such as scope for achievement, recognition and opportunities for growth, career development opportunities, training, and working environment.

Chad Daugherty, a principal at Towers Perrin, points to the importance of all the elements. “You need decent pay and benefits to recruit the best staff in the first place. But the less tangible rewards are what will keep staff at your company.”

How these tangible and intangible rewards are structured will depend on the employees they are aimed at. Daugherty argues that a successful total reward strategy may incorporate different emphases, depending on the demographics and needs of the business. For example, there will be a significant difference in the design of a total reward strategy for the staff working in a bank compared to those in a retail call centre.

Daugherty also points out that it is less common to have a single total reward strategy across a whole company. Staff in specific divisions will have different needs, wants and demands. For example, staff working on the treasury and institutional side of a bank will have different needs and wants compared to those working on the retail side. Consequently, he says that it is vital that employers design their total reward strategy carefully to suit their specific workforces.

Expanding remuneration (pay and benefits) to include intangible rewards is not without its problems. Aon’s Page argues that employee attitudes towards the less tangible benefits, such as working environment, staff development programmes and the ethical or environmental stances of the organisation, are highly subjective. “These are more personal and harder to communicate. For some employees they are of no value, for others they mean a lot,” she says. Flexible working, for example, may be valued more highly by working mothers than by single men.

Determining what will go down well with a specific group of employees can be difficult, but not impossible. Basic research can show which aspects are likely to prove popular among employees. Once a strategy is in place, employee surveys and focus groups can help determine which are the most popular benefits that ultimately attract good employees and keep them working for the company. Page suggests that employers conduct research at least on an annual basis, to track the year-on-year progress of their total reward strategy. “You can ask employees what they think their package might be worth and see how far off they are,” she says.

Michael Whitfield, CEO of Thomsons Online Benefits says that it can be a simple matter of measuring how many employees valued their total reward package last year compared to this year. It is important that firms measure what works, so that they offer the right package and know what value they are getting for their spend. “It’s about intelligent reward. Why are you implementing total reward? You don’t want to waste money,” he says.

Whitfield also agrees that ‘one size fits all’ does not apply to total reward. He tells of two firms of 1,000-plus staff, both of which offer employee assistance programmes (EAPs). In one, only around 50 people a year use the service, in the other the service is used by up to 400 people a year. The first is a firm of lawyers and the second is a media business. “The staff there are younger and probably in more stressful jobs,” explains Whitfield.

However, he also says that the programme is more actively promoted at the second firm than the first. “Both firms pay an identical price for the programme, but one gets nearly 10 times as much value as the other.”

Watson Wyatt’s Luck adds: “What do the employees value? Make sure that’s what you’re offering.”

How the total reward package is communicated to employees is just as important as the content of the package. Staff are not aware of it or its value, the employer is simply wasting money.

“You can use surveys to ask employees what would make them join a different firm, and to ask new recruits what attracted them to your company in the first place,” says Page. “You can measure changes in attitude year-on-year. You may not get definitive results, but you’ll be clear whether the HR budget is delivering ‘bang for buck’ and how connected employees feel. Over three to five years, you can start to see a big difference,” says Whitfield.

Page suggests that the total reward package should be promoted little and often, rather than all at once. Employees rarely have time to go through all the details. “You can always present the whole package in the background, but draw their attention to one thing at a time. Do it in bite-sized chunks so that if they see something they can easily find out more information.”

These promotions should be based on special issues that interest employees. For example, one firm pays its bonuses in January. At the same time, it runs a promotion focused on holiday benefits and travel insurance, since many employees use their bonus payments to pay for their holidays.

Total reward statements (TRS) have a vital part to play in the communication of a total reward strategy. In fact, they are often the precursor to a fully-fledged total reward strategy as employers initially list pay and benefits before adding in the less tangible elements.

A TRS should be clear and simple to read and engage the employee’s interest “They should list the benefits, but attach a monetary value to as many as possible, so employees can see it,” says Page. “Make it simple, so they can see the overall figures at a glance. If it’s too complex, people won’t take it in.”

Luck says that employers are beginning to incorporate the softer, less tangible parts of their reward package into their statements. It can be difficult to quantify career development, or the company’s stance on the environment, but statements can include how much an employer has spent on training courses and the cost of sending employees to specific conferences and events.

Statements must also be timely, and for that reason many recommend that they be provided online rather than on paper. “The day it’s printed a TRS becomes obsolete,” argues Whitfield. Page agrees, suggesting that they are worth very little if they are out-of date. “They’re probably best done online to keep them fresh and up to date,” she says.

Cost and functionality are also big advantages that online has over paper. Online, the information can be updated in real time. It can provide easy access to more information. A simple screen presentation can list the benefits with their monetary value alongside, but with a few clicks, the employee can find out more details.

Whitfield also believes that online options can be used to promote different aspects of an employer’s total reward offering and to help measure its effectiveness. “You could put the share plan details on the home page so that employees have to go online to look at the share price. You can use different techniques to drive employees to that site and capture that information,” he says.

Whitfield tells of one particular firm where the employees are scattered over different sites. In order to be paid, they have to input their bank details online. When they first access the system they see a webcast promoting their reward package. “It’s a clever way to engage people who might not otherwise go online,” he says.

Everyone acknowledges, however, that not all employees have online access and that some are simply technophobes, in which case paper statements will have to suffice. Like their online counterparts, they need to be kept as attractive, simple and timely as possible. Chart 1 above shows the results of research conducted by Thomsons Online Benefits among employers who use a TRS. The main benefits include employees understanding their reward package better and having a better appreciation of its value.

“TRS help quantify what employees have, particularly if they’re thinking of other career opportunities,” says Towers Perrin’s Daugherty. Aon’s Page agrees: “The main advantage of total reward is that it makes people think about the whole package,” she says. “People often focus on basic salary. They will move jobs for a 5% pay increase, but not check the benefits. It’s important that they understand what the package is worth.”

Thomsons’ Whitfield also believes that an active programme to measure and evaluate the effectiveness of an employer’s total reward package is needed to be able to see the effect on employee engagement. “Do the benefits incentivise employees to stay at the company?” he asks. “Is there a lower level of staff turnover compared with the previous year?”

Benefits derived from offering total reward statements (TRS)

Improved employees’ understanding of their reward package – 63%
Improved employees’ understanding of the value of their reward package – 57%
Reduced number of benefits queries to HR team- 18%
Don’t know -18%
Improved retention/turnover -12%
None- 12%
Other- 3%

For more information on total reward please visit: www.employeebenefits.co.uk

Back to Employee Benefits Report for Financial Directors – September 2008