Focus on Total Rewards

May 2013

At a glance

Download: Focus on Total Rewards

In this issue of HR Innovation, we focus on Total Rewards, and delver into the challenges employers face of getting their employees' "total rewards" packages right.

Executives across industries share the challenge of getting their employees' "total rewards" package right. From health benefits to incentive programs, executives struggle to measure the effectiveness of total rewards in attracting, developing, and retaining talent and contributing to organizational success. Without a doubt, the total rewards challenge is chronic and common, cutting across the industry spectrum and testing leadership’s strategic focus—and sometimes patience.

But it’s important to get it right. Among participants in our 16th Annual Global CEO Survey who view employees as important stakeholders, 80% plan to strengthen their employee engagement programs. The key lies in the ability to look beyond pure reward to the wider employee value proposition, balancing the financial and nonfinancial rewards.

Incentives that are too complex or ambiguous can create trust and value "gaps" among employees. On the other hand, nonmonetary incentives can be just as effective as traditional metrics-based bonuses or other financial rewards. For example, an opportunity for development in a new and challenging area of the business that a high-level executive might consider a “dream job” could be more effective in building long-term loyalty and motivation.

Similarly, in today’s global competition for talent, it may not be enough to offer basic "me too" type benefits. Employers who want to attract diverse, top-level talent must design total rewards packages that contribute to the overall mental and physical well-being of their employees. Going beyond basic health benefits to include an incentive-based wellness component, for example, can help motivate and engage employees, boost productivity, and reduce illness and absenteeism, all of which are essential to organizational health.

Employers who care about the “whole person” also must take a closer look at how global economic austerity measures might affect the financial health of their talent pool. Employees, especially higher wage earners, are facing a greater US tax burden this year. Business leaders who consider options such as deferred compensation plans can help their people manage their personal finances more effectively.

In an era of continuing merger and acquisition activity, it’s crucial to understand your own company’s total rewards structure and how a target company’s program might fit into it. The implications of an acquisition for a target company’s total rewards structure can be profound, requiring the buyer to tweak metrics, replace certain awards, and often realign the performance management framework to support an integrated post-acquisition rewards structure.

In this issue of HR Innovation, we delve into the complexities of total rewards design. We hope you’ll take the opportunity to review the perspectives offered in HR Innovation. We believe employers may benefit from reassessing their total rewards programs, looking at the balance of monetary and non monetary incentives and rewards and taking into consideration the well-being of the employee as a "whole person" whose physical, mental, and financial health is essential to the health of the organization. Understanding employee perceptions about current total reward offerings can be an important first step in such a reassessment. Refining total rewards programs to balance the objectives of investors, the business, and employees has the potential to benefit both employers and employees.