Reward’s reach goes beyond pay and benefits

As increasing numbers of employers take a holistic approach to reward, which goes beyond pay and benefits to more intangible perks, what does the future have in store for the concept, asks Alison Coleman

Attracting and retaining staff remains one of the biggest challenges for employers, who realise that simply adding extra content to their benefits package or making salaries more competitive, will not always engage valuable talent.

The future, as seen by many employers, lies in total reward, which allows them to communicate the best of what they have to offer, combining core elements such as base pay and other cash-based incentives with a raft of indirect-reward components, such as healthcare, lifestyle, and retirement perks.

While total reward has proved hugely successful in communicating the financial value of their benefits to employees, employers need to find more innovative ways of using the concept if they are to maintain an engaged and motivated workforce.

Paul O’Malley, a principal at Mercer Human Resource Consulting, says: “What we are seeing is employers taking a broader view of total reward, going beyond the basics of salary and benefits and adding elements of personal and professional development, career opportunity, as well as the work environment and cultural reputation.”

Taking a holistic approach to reward, however, requires careful thought in terms of communicating the bigger picture. “With something like training and development, for example, the focus must be on the key skills and competencies that it provides, or else it can be interpreted by staff as training for the sake of it,” explains O’Malley.

Health and wellbeing is likely to remain high on the employee engagement agenda. “We expect to see more being offered on the preventative side, with things like support with giving up smoking, reducing alcohol intake, and healthier-eating options at work, in line with a clear illustration on the total reward statement of how much the organisation has invested in keeping its staff healthy,” says O’Malley.

Valuing intangibles
The challenge for employers going forward will be to put a value to some of the less tangible elements of reward. Pay and benefits are relatively easy to quantify for cost purposes. Even options such as health and wellbeing benefits can be summarised in terms of annual spend by the employer.

But the value of factors such as a challenging role, freedom and autonomy at work, and being involved in decisions that affect the way work is done, are harder to define in a conventional way, so employers must look for ever more effective ways of spelling out what staff stand to gain through them.

Variable pay poses another challenge for total reward. Although the concept is fundamentally simple, it can make a true total reward strategy difficult to put into practice, says Martha How, reward consulting team leader at consultancy Hewitt Associates.

“Where you have employees whose pay includes commission or bonus payments, and is therefore likely to fluctuate from one year to another, the challenge is how to present that information on their total reward statement in a way that incentivises them?

“If you base the salary information included on the total reward statement on a previous year’s earnings and they don’t achieve that target it could have a detrimental effect on their performance and ultimately their engagement with the organisation.”

Total reward schemes of the future, therefore, must be able to fully accommodate the demands created by a variety of staffing structures, including full-time, part-time, or temporary workers, as well as teleworkers and those working compressed hours.

Also changing is the way that employees access and use total reward. Paul Bartlett, head of product development, employee benefits at the Grass Roots Group, believes total reward is already becoming a more interactive concept rather than a means of displaying static information. “Video and modelling tools, for things like equity and pensions are just part of the solution, and this can mean that the communications themselves will become more engaging and, in the case of portals, more interactive.”

This might include, for example, offering a retirement planning tool which enables employees to model the amount they need to contribute against their desired retirement age and income.

Total reward statements may also look quite different in the future. Adrian Glew, a director at benefits specialist The Personal Group, says: “One development proving to be of particular interest is the highlighting and splitting of the tax charges or concessions for each benefit. This is shown in a chart and as a monetary example within the statement.”

Along with paper total reward statements, the company produces online versions, which allow employees the choice of viewing either a basic summary only or full details of their package.

Long-term incentives should also be included on total reward statements. With time, it is expected that these will be able to show employees the historical value of their total reward compared with the most recent values. Some organisations are also using statements to find out what employees think. “We now are ‘top and tailing’ our paper and online reports with electronic surveys which are helping the employer to understand in more detail what the employee thinks and how they value their package. At the same time, the employee feels they are playing a bigger roll in their packages and helping to shape the benefits programme,” adds Glew.

Offering regular benefit updates and new perks throughout the year also helps to keep the concept of total reward alive and on employees’ radar.

Another emerging trend is green benefits. “There is already a strong interest in adding green messages to total reward by including environmental products and benefits, for example, carbon offsetting. I envisage very soon total reward that will not only include a statement of the employee’s and the company’s environmental impact, but also the steps that either is making to reduce their ‘footprint’,” says Bartlett.

If total reward as a concept continues to develop as expected to become increasingly instrumental to staff recruitment and retention, a growing number of employers will find that they have to take it up.

According to the Chartered Institute of Personnel and Development’s Reward management survey 2007, around four-in-10 employers have adopted or are implementing total reward, with the highest proportion of these being larger private sector firms.

Alistair Denton, managing director of Motivano, believes take up will increase among smaller organisations. “In the same way that flexible benefits systems have become more affordable to smaller employers, total reward is also being used by more companies in the 50-to-500 employee bracket. Ten-to-15 years from now, even employers in the mid-market sector will have to offer total reward if they have any hope of competing for staff,” he explains.

Ultimately, if total reward includes features such as flexible working and flexible benefits, staff will feel empowered by the ability to tailor their work and surroundings to meet their personal and professional needs, all without higher costs for the employer.

“Total reward will continue to exceed conventional remuneration by embracing the company culture, and giving employees a voice in the operation, with employers, in return, receiving an engaged employee performance,” says O’Malley n 29%Researchn Only 29% of employers define total reward as just pay and benefits.

Research

  • Over 60% include careers in their definition of total reward, while 40% also include factors such as culture, leadership and work-life balance.
  • Key challenges over the next year are attracting and retaining the right talent, identifying and rewarding high performers and ensuring their rewards strategy is linked to their business strategy.
  • Over 60% believe their total reward strategy is very effective in retaining high performers and attracting key talent.
  • But just 43% believe their rewards effectively differentiate between staff performance and help to increase employee satisfaction.

Source: Mercer Human Resource Consulting’s European total rewards survey 200640%60%43%Qinetiq pilot takes offDefence technology company Qinetiq recognised the need to look to the future when it introduced its total reward offering.

Case Study: Qinetiq

Defence technology company Qinetiq recognised the need to look to the future when it introduced its total reward offering.

John Leighton-Jones, group head of reward and performance, says: “We decided not to launch everything all at once, and kept a few things back.”†

It initially launched total reward statements in 2004 as a precursor to a flexible benefits scheme for its 8,000 employees. “The response was phenomenal. Some people had been thinking about leaving, but once they had the full value of their benefits in front of them they were able to compare what they were getting with what other employers were offering,” says Leighton-Jones.

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Total reward statements were initially mailed out to employees’ home addresses. The following year, when flex was in place, Qinetiq moved total reward online, with statements updated every month.

Qinetiq now has additional plans in the pipeline for its scheme. “This year, for example, we are introducing an online health survey facility for staff. Our total reward strategy has delivered significant cost benefits in terms of savings on recruitment costs,” adds Leighton-Jones.