We are all starting to become used to the notion of restrained pay increases, pay freezes and even pay cuts but we have noticed that this shift in the economic climate is driving some of our customers to ask 'how can we make our employees feel valued?' There are a number of ways we could answer this question but the answer we often come back to is 'Total Reward'. Many organisations believe that they are offering a competitive reward package but have either been unable to quantify it or have just not communicated its value to their employees.
What is Total Reward?
The concept of Total Reward is not a new one but it is only in the last year or so that we have seen an increase in the number of organisations that are keen to promote their total reward package. Total Reward can have different meanings to different people and in many organisations it signifies a statement identifying base pay plus each paid benefit/allowance (e.g. overtime, bonus, London weighting) and a summary of each non-pay benefit for which the employee is eligible. To other people Total Reward stretches much wider than this and incorporates the value of career progression, personal development, the working environment, the organisation's culture and its stance on work-life balance.
Overall statement of financial benefits
The first approach is certainly the simpler of the two and it does satisfy the main objective that organisations want to achieve - which is to provide their employees with an overall view of their remuneration package and to remind them of the benefits to which they are entitled. This process is also a great starting point for those organisations that then want to compare how their offering compares with other employers.
Communication is the most important element of any Total Reward system and, in the above example, organisations achieve this by designing a template reward statement that will incorporate all of their benefits which they then complete electronically for every employee. These statements are typically distributed at the time of the annual salary review so that employees can clearly see their new base salary and associated benefits together with the value of allowances paid over the previous twelve months.
Benefits plus work-life balance components
The second approach is more complex but it has significant benefits for both the organisation and the employees, not least of which is the facility to highlight the value of some of the more fundamental elements of an employment contract that attract and retain employees, such as work-life balance and career development. For example, an employee may only be reasonably satisfied with their base pay and benefits entitlement (and this is a common finding in staff attitude surveys) but this shortfall may be more than compensated for by the non-pay features of the job e.g. a supportive work-life balance that enables individuals to work from home on occasions or to work compressed hours to suit their domestic situation. The benefits that this gives to the organisation come in many forms, ranging from being more attractive to potential recruits to strategically setting an appropriate pay policy for the entire organisation that takes all of these factors into account in order to create a balanced and cost-effective total reward package.
Aside from providing employees with a very transparent view of their overall value of their reward package, this approach also offers the organisation a real opportunity to make savings in their pay bill - as some things have a high cost, but are perceived to have little value. So why don't more organisations adopt this approach? We believe it is because of the perception that employers will have to undertake complex calculations to determine the value of each of the non-financial aspects of their reward package, many of which are intangible items.
How can this approach make savings for the employer?
When an organisation implements a Total Reward system it will be able to make more informed decisions about individual aspects of the remuneration package. For example, one organisation we work with has been able to set its pay levels at just below their market median because its non-pay offering is extremely generous e.g. a great work-life balance, a flexible working policy, a culture of empowerment, fantastic opportunities for personal development and the opportunity to take sabbatical leave. Additionally, the organisation operates a very attractive pension scheme and generous sick and maternity leave schemes. It also offers car parking for all of its employees and has on-site gym facilities.
Additionally this same organisation (a public body in the academic sector) wanted to understand (in financial terms) what effect this had on their overall pay bill. They adopted a culture of rewarding employees for higher performance and invested time and resources in developing their individuals so that they could become higher performing individuals. They had a general impression that this was having a positive effect on their salary budget but could not determine the exact figure. We considered factors such as the quantity and quality of work that high performing individuals could accomplish, sickness absence rates, turnover rates and the financial investment in training and development. We compared the statistics that existed within this organisation against others in their sector and calculated the cost of recruiting and training new employees. Our final conclusion was that the organisation saved approximately 20% of their salary bill by adopting this culture.
Another way that savings can be achieved is due to the effect that the total reward approach has on staff morale. As long as employees feel that pay is fair, research suggests that communicating the total reward value leads to higher levels of engagement among employees, improved recruitment and retention (which has a saving in itself) and increased productivity.
How do organisations implement a Total Reward philosophy?
Contrary to expectations, it is not critical for organisations to determine an exact value for every element of their total reward package. The most important aspect of Total Reward is communication and whilst a reward statement identifying a value for each of the paid elements of the package as well as some of the benefits (e.g. company cars, private heath insurance) is an ideal approach this would be much harder to achieve for the less tangible elements. For example, it would be almost impossible for an organisation to quantify career progression in cash terms, but providing that employees are aware of the structure and can clearly see what they need to obtain/learn to progress (e.g. through published job profiles or job family frameworks) this will highlight the opportunities available. Likewise, developing a set of corporate values and introducing recognition schemes are examples of how to promote the company culture.
In terms of the logistics of implementing a total reward philosophy there are three key stages in the process, starting with an analysis of the existing offering and determining whether it is still effective. The second stage is designing the new total reward package (which may just be a re-packaging of the current offering) and the final stage is the implementation of the new scheme - possibly involving a pilot launch in one area of the business or rolling out a few elements at a time.
In summary, then, implementing Total Reward is not generally a simple exercise but because of the many benefits it provides, we believe it is certainly worth organisations giving it due consideration.