Money isn’t everything — especially when it comes to choosing or keeping a job. Sure, offering competitive salaries will improve your business’s ability to attract and retain top talent, but compensation is just one of many factors that make your company a great place to work. Employee benefits, workplace culture, office location, and other non-monetary offerings play a significant role in making your company attractive to prospective employees and fostering loyalty and dedication among your current staff.
Think of your own job search: What would you look for in a new role? If you were offered two identical jobs with the same salary, what would persuade you to take one role over the other? It could be better professional growth opportunities, employer-sponsored healthcare benefits, paid parental leave, or more work-life balance. These other factors, while sometimes more qualitative than quantitative, can significantly influence a candidate’s decision to accept or reject a job offer with your company, or an employee’s decision to stay with or leave your organization.
That’s why it’s crucial to approach your compensation, benefits, and employee development programs more holistically and fully understand the value each offering provides your employees. This comprehensive approach to employee compensation is called building a “total rewards package,” which can better convey the value of your business’s programs for employee compensation, well-being, benefits, recognition, and development to both current and prospective employees.
Here’s a look at what employee total rewards programs are, their benefits, and best practices for adopting this concept within your organization.
What Is a Total Rewards Strategy?
To define employee total rewards, it’s essential to start by defining total compensation. Total compensation consists of all the monetary rewards an employee earns during a year. In addition to an employee’s salary, total compensation includes other financial benefits like bonuses, commissions, merit awards, and equity. While all of these items make up an employee’s gross pay, total compensation doesn’t factor in any non-monetary benefits an employee receives from their employer, while total rewards, on the other hand, does.
Employee total rewards combines both the monetary and non-monetary benefits an employee earns at a company. In addition to gross pay, a total rewards package includes things like traditional benefits (e.g. health, vision, and dental insurance) and voluntary benefits (e.g. disability insurance, financial counseling, or critical illness coverage), retirement plans, vacation time, work-life flexibility, career advancement training programs, and wellness programs.
“Companies go to great lengths and considerable expense to position themselves as ‘great places to work;’ however, they typically get little credit from their employees for all of these supposed good works,” said J.D. Pincus, PhD, Vice President at human capital solutions company Leading Indicator Systems.
“Part of the reason is that these rewards are never communicated to employees,” Pincus continued. “By sharing the complete reward landscape and how the company provides opportunities for security, inclusion, autonomy, and caring; immersion, personal growth, recognition, and material success; and a reputation for fairness, ethical practices, and higher purpose, it becomes easy to understand the vast non-monetary rewards that employees receive.”
Usually, companies calculate each employee’s individual total rewards and present it to them on a total rewards statement, either during annual performance reviews for employees or along with an offer letter for candidates. This helps give employees a better understanding of all the internal programs their organization has set up to help them personally and professionally, as well as better recognize the value they get by working for the company.
Benefits of Calculating Employee Total Rewards
In addition to letting you think more holistically and strategically about your business’s compensation and benefits plans, calculating your employee total rewards can help you attract, retain, and motivate your workforce. Here’s how.
1. Attract top talent.
Sharing employee total rewards can be a powerful recruiting tool. It gives prospective job candidates a more inclusive view of all the benefits that come with working for your company, allowing them to make a more informed decision about your employment offer.
In fact, a survey by the National Bureau of Economic Research found that more than 40% of employees said they would take a job with a lower salary for better benefits like flexible work scheduling and the ability to work from home. Survey respondents also shared that they view flexible scheduling as the equivalent of a 9% pay increase and telecommuting as a 4.1% increase. Being upfront about these perks in job descriptions and employment offers can help you win over top talent and seal the deal with candidates who are on the fence.
2. Retain current employees.
Adopting an employee total rewards program can also help you retain top talent by educating your employees on your current offerings, thus allowing them to take full advantage of everything your business has to offer. A 2018 survey by risk management and insurance brokerage firm Willis Towers Watson revealed that 78% of workers said they would stay with their current employer because of the benefits it offers.
“Businesses that effectively communicate their entire range of benefits stand the best chance of maintaining positive relationships with high-caliber employees,” stated Tony Giacobbe, HR and talent acquisition leader at Amica Senior Lifestyles, a Canadian-based company providing premium retirement residences. “There will be a greater chance of retention as employees are informed of the benefits that they will enjoy at different stages along their career path.”
Importantly, educating your employees on all of your benefits and programs can inspire company loyalty and increase tenure.
3. Engage your workforce.
Lastly, sharing a personalized total rewards statement with each of your employees allows them to better understand everything they’re getting out of their working relationship with your organization. Insurance company Guardian Life’s Sixth Annual Workplace Benefits Study revealed that 70% of employees said they would be more loyal to a company that offers employee benefits personalized to their needs.
A total rewards mindset can help your team build an inclusive benefits package that offers something for every employee. Tying certain benefits to company performance, like annual bonuses and employee recognition programs, can increase employee accountability and encourage employees to meet and exceed individual and company goals. When your employees know how their contributions affect overall company success, they will be more engaged in their work.
Employee Total Rewards Best Practices
Ready to introduce total rewards at your company? Here are a few things to keep in mind when crafting a total rewards strategy and annual statements.
1. Invest in benefits your employees care about.
Looking at your compensation and benefits plan holistically lets you be more strategic about your plans for the future, as well as identify gaps in your current offerings. Remember that you’re designing these rewards for your employees, so you should regularly survey them to ensure your current programs meet their present needs.
“Find out from your employees what matters to them and build total rewards programs that provide solutions to their needs,” advised Aaron Cleavinger, MBA, CPSM, CPM, Managing Partner at Murdoch Mason Executive Search Group, an executive and strategy consulting firm specializing in consumer-focused companies. “Then, communicate the connection between employee input and company offerings early and often, so they feel connected to the process.”
2. Don’t inflate value.
When assembling your personalized total rewards statements for employees, make sure you don’t try to inflate the monetary value of any non-monetary benefits. While unlimited paid time off (PTO) is an attractive perk, it doesn’t warrant a $50,000 price tag, for example. You can estimate the actual value by calculating what the equivalent of their daily pay would be and multiplying that by the number of days off the employee took in the past calendar year. For a prospective job candidate, you can take a similar approach by multiplying their proposed daily pay by the number of PTO days included in your policy or offer, or, if you offer an unlimited PTO plan, use the average number of vacation days your employees took off in the previous year.
“Be transparent about the actual costs and benefits of the programs,” stressed Cleavinger. “Employees see through attempts to overemphasize value if they don’t feel positively impacted.” You can even ask your employees how valuable a certain program or policy is to them to help you generate a value for a particular hard-to-quantify offering.
3. Communicate total rewards to employees.
Once you’ve calculated every employee’s total rewards package, you need to share it with them. Some companies have software providers that allow them to share statements with employees digitally, while other businesses choose to distribute physical statements to their teams. However your business decides to share statements, be sure you tell employees where they can find their personalized report and remind them to take the time to review it.
Most companies choose to share employee total rewards annually, often tying them to performance or salary reviews or the end of the fiscal year, but the timeline is completely up to you. You can make it a practice for managers to print out hard copies of these statements to bring to all their team members’ annual performance reviews, or consider sending an updated digital copy to employees every year during open enrollment.
4. Categorize your statements.
Breaking your rewards up into distinct categories can make your statements easier to read and help you identify program gaps. Many companies choose to split their rewards up into five categories: compensation, benefits, work-life, performance and recognition, and employee development. That said, you can pick or define whichever categories work best for you, your business, and your employees.
Keep in mind that every benefit your business offers is designed to help your employees and show that your company takes care of them beyond a paycheck. While some benefits might impact certain employees more than others, it’s your job to design a total rewards package that leaves all your employees feeling supported and valued by your organization.
A total rewards statement can be a powerful visual reminder of the financial commitment your business has made in employees’ personal and professional growth. Regularly communicating that to your employees will go a long way toward attracting, retaining, and engaging top talent.