TOTAL REWARD
New factsheet on total reward
Total reward as a philosophy is now well ingrained into the mainstream HR landscape and a recent factsheet on the subject from the Chartered Institute of Personnel and Development provides a good overview of the subject examining both what it is, as well as some of the problems associated with it. More specifically, the factsheet introduces the idea and components of the approach along with common criticisms and the CIPD’s own viewpoint.
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In essence, total reward recognises that pay is not the only staff motivator and acknowledges the importance of intangible as well as tangible rewards within the wider work experience. It also recognises that total reward provides companies a greater number of weapons in their armoury to trigger higher levels of performance from their staff.
Extent
As far as its prevalence, the latest CIPD annual reward management survey found that around three in ten employers have adopted this approach, while a further 21% claim that they plan to introduce total reward in the next 12 months.
Total rewards defined
The CIPD defines total reward as the term:
“That has been adopted to describe a reward strategy that brings additional components such as learning and development, together with aspects of the working environment, into the benefits package. It goes beyond standard remuneration by embracing the company culture, and is aimed at giving all employees a voice in the operation, with the employer in return receiving an engaged employee performance.”
The US organisation WorldatWork identifies five separate components of the work experience. These are:
recognition
work-life balance
company culture
employee development
environment, including job design and the physical workspace.
Although these elements have always existed in the workplace, they have often been taken for granted and thus not actively managed. Under a total reward policy, all aspects of the work experience are recognised and prominence is given not only to remuneration but also to less tangible rewards. This is important since experience shows that employees place great emphasis on intangible rewards when deciding where to work and the level of commitment to give to their work.
What total rewards bring
The CIPD also provides the various ways in which total reward models can be characterised, including being:
Holistic: it focuses on how employers attract, retain and engage employees to contribute to organisational success using an array of financial and non-financial rewards.
Best fit: it adopts a contingency approach – total reward programmes need to be tailored to the organisation's own particular culture, structure, work process and business objectives.
Integrative: it delivers innovative rewards that are integrated with other HR policies and practices.
Strategic: it aligns all aspects of reward to business strategy – total reward is driven by business needs and rewards the business activities, employee behaviour and values that support strategic goals and objectives.
People-centred: it recognises that people are a key source of sustainable competitive advantage and begins by focusing on what employees actually value in the total work environment.
Customised: it identifies a flexible mix of rewards that offers choice and is better designed to meet employees’ needs, their lifestyle and stage of life.
Distinctive: it uses a complex and diverse set of rewards to create a powerful and idiosyncratic employer brand that serves to differentiate the organisation from its rivals.
Evolutionary: it is a long-term approach based on incremental rather than on radical change.
In practice, total reward encompasses pay and benefits (generally in the form of a flexible benefits scheme), the working environment, and career and personal development. Using this wider number of reward tools, it is argued, makes it easier for companies to recruit better-quality staff, reduce wastage from staff turnover, and provide better business performance while enhancing the reputation of the organisation as an employer of choice.
Perceived problems
The factsheet asserts that total reward may be regarded as the next logical step after flexible benefits and, similar to flex, no off-the-shelf package is available for companies simply to plug into their operation. As a result, it may prove quite complicated for employers to operate total rewards without the help of consultants, says the CIPD. In addition, there are difficulties over where to draw the line between choices related to personal needs (such as life assurance) and choices that are strictly business-related (such as the choice of computer).
What’s more, some employers report difficulties in integrating the non-financial aspects (learning and development, work-life balance, and other financial rewards) of reward into a total reward approach in comparison to the financial aspects. Another problem encountered by some organisations was with line managers not supporting their organisation’s commitment to total reward. Without such support, the CIPD argues the approach is likely to fail.
Why consider it?
Most companies have an eye on new ways of gaining a competitive advantage over their rivals and this stretches to considerations of reward too. This sometimes leads them to consider total reward. Further, demographic changes have resulted in a more diverse workforce demanding different returns from work and total reward is one option to achieve these objectives. In fact, a fully integrated total reward package includes all the elements of the employee's work as part of a single flexible package.
The CIPD factsheet goes on to argue that it is only when all the elements of the reward package (that is total rewards) are considered within the context of business and HR strategies that the total cost of each employee's job can provide the most valuable return to the organisation. Thus total reward links cost control with the demand by employees for greater choice and flexibility in the workplace. It also offers employers the opportunity to differentiate and create cultural brand, and thence competitive advantage – something hard to replicate.
A final word
In conclusion, the factsheet gives the CIPD viewpoint that states that:
“Total reward is a developing management practice that is fairly simple to understand but very complex in operation because it has wide-reaching implications for approaches to reward management and for cultural change in organisations. It is an exciting leading edge concept that focuses on employee empowerment rather than employer command management. Total reward has the possibility of being a very powerful management tool and change catalyst.”
Want to know more?
Title: Total Reward Factsheet, Chartered Institute of Personnel and Development, April 2008.
Availability: To download the Total Reward Factsheet, go to www.cipd.co.uk/onlineinfodocuments/factsheets.htm.
The Chartered Institute of Personnel and Development (CIPD) has more than 130,000 members and is the “leading professional institute for those involved in the management and development of people”.