Total rewards emphasises the importance of considering all aspects of reward as an integrated and coherent whole
For designing an effective Total Reward program,there are 5 success factors that an HR Manager must keep in mind
Total Rewards as a concept is gain-ing a lot of popularity in India in the last few years, prima-rily because of two broad phenomena; first being the diverse needs of an evolved workforce. Our workforce today is exposed to the developed world, articulate about their needs, and wants the best of everything – competitive salary, comfortable lifestyle, job security, career enhancement options, work-life balance, et al. Organizations realize that cash is easily replicable by others and to remain competitive, they are being forced to design a differentiator, which is much beyond the traditional elements of pay and bonus, and caters to a population which has diverse needs. Second reason behind the emergence of the concept of Total Rewards is the dip in India Inc.’s business performance. Till 2008, employees had got used to receiving handsome increments in the range of 14-16% on an average. Prime focus in rewards was on pay and bonus and to some extent on long term incentives. Slowdown on the business front in 2009 led to salary and hiring freezes, low attrition levels, cost containment, lower employee budgets on development and travel. New recruits were being hired at lower salary levels due to increased availability as very few companies hired. India Inc. witnessed the lowest ever salary increases in the last five years in 2009 – to the tune of 7–9% on an average. Sector wise analysis indicated that the lowest salary increases were observed in the Financial Services and IT/ITeS sectors and highest increases were observed in Pharma followed by Manufacturing and FMCG sectors.
To compensate for lower payouts, companies have tried innovative intrinsic ways of motivating and engaging with employees by focusing more on enhanced communication, job enrichment/ enlargement, career and succession planning, internal promotions, et al; rather than on increasing pay levels, thereby focusing on cost containment. Employees, in return provide their time, talent and efforts to the company. Total Rewards emphasizes the importance of considering all aspects of reward as an integrated and coherent whole. Successful companies realize that productive employees create value for their organizations in return for tangible and intangible values that enriches their lives.
Several definitions of Total Reward are prevalent in the marketplace. One of the simpler ones that we subscribe to is “Value that an employee gets in exchange for the employment relationship with the employer.”
Total Reward and Motivation
Attraction and retention of talent is the main objective of any Total Reward Program, as also is the motivation of talent ensuring productivity, participation and improvement in business. There is a close linkage between motivation and rewards. For the purpose of this article, we have used Clayton Alderfer’s ERG (Existence, Relatedness and Growth) theory to understand the three levels of motivational needs of employees and their linkage to different reward elements. Alderfer had clarified that the existence group is concerned mainly with providing basic material existence. The second group is the need of individuals to maintain interpersonal relationship with other members in the group. The final group is the intrinsic desire to grow and develop personally. More than one need may be operative in an individual at the same time. If a higher need goes unsatisfied then the desire to satisfy a lower need intensifies.
Employees completely subscribe to this correlation. As per them it is only if growth needs of an employee are not met that they start worrying about pay not being competitive, peers not being co-operative and helpful, bosses not being mentors to them, et al. In case the growth needs are met, employees would be engaged even in the absence of the existence level needs being fully met.
FIVE SUCCESS FACTORS OF TOTAL REWARD DESIGN
For designing an effective Total Reward program, there are 5 success factors that an HR Manager must keep in mind.
1. Total Reward program needs to be aligned to the Business Strategy
Total Rewards programme is reflective of the Organization Strategy and the HR strategy, which are further determined by external and internal influences.
One of our clients, a Product Innovation company that needs brightest of minds pays Total Cash at market rate but rewards innovation in product and processes. Job descriptions are flexible and generic so that employees end up performing well beyond their jobs. Emphasis is on career development and employee growth.
More such real life scenarios captured from various organizations are presented in the picture below:
2. Total Reward needs to have a linkage and complement other HR Systems
Total Reward in relation with:
• Recruitment - Total Reward is the signature statement of an employer that helps in attraction of talent. It is a sizeable determinant in inviting applications for jobs and enhancing offer acceptance.
• Learning and Development- Non-Compensation rewards such as trainings, coaching, mentoring, et al, help meet affiliation needs of employees, apart from development. Succession planning can also be used to assess employee potential, differentiate high potentials and provide structured and formal growth opportunities.
• Performance Management- The outcome of PMS, in its most basic form, is used for Reward Management. At the next step both systems should inculcate and promote same values and behaviours. In fact, fair and balanced performance evaluation and feedback is a rewarding experience in itself.
• Work Culture- Total Reward and Work culture go hand-in-hand — One defines the other. An organization that wants to promote team culture will promote team based incentives, team activities and team affiliation. Cultures of flexible working, dependant support, et al, are the most valued attributes of an organization that employees would not trade for anything.
3. Align Total Reward with Employee needs
Understanding “What employees want?” is the most complex jigsaw puzzle. However, let us try to understand this from the basics by looking at the demographic profile of our working population (in terms of age & level and qualification background).
Age and level:
Majority of India’s workforce is in the age group of 20 – 35 years (as seen in the graph).
Graph shows the distribution of qualifications from various educational institutes.
Each group would have a different set of predominant needs.
An illustrative (on next page) of how employee demographic profile can be used to determine the Reward needs of employees.
4. Communicating Total Rewards Programme
Many organizations do not publicly formalize their Reward Programs for fear of over commitment or being copied by the competition. However, a formally launched Reward Program generates much more goodwill with employees. A comprehensive, well balanced (compensation and non-compensation rewards) program customized to the needs of employees and implemented fairly and effectively is difficult to imitate.
Communication of the Total Reward package has to bear the following objectives in mind:
• Increasing the “Perceived Value” of benefits
• Enhancing the sense of transparency and fairness of the system
• Increasing utilization of benefits
• Managing employee expectations
• Accessibility of information of the package to employees and potential employees for an easy comparison with competition
5. Continually re-evaluate the program
Re-evaluation of Total Reward program is necessary to ensure overall alignment and checking its impact on the organization. Additionally, companies should watch for changes in the following 4 factors that impact Reward package design:
• Business Strategy - decides focus areas of Reward elements
• Type of Business - determines the extent of internal parity and market competitiveness
• Employee Demographic profile - the deciding factor for introducing certain rewards and requires flexibility
• Government regulation - helps to decide the compensation structure due to taxation.
Overall, the concept of Total Rewards seem to be finding currency in the changing landscape where an employee value proposition is viewed on a more holistic scale encompassing what an organization can offer, be it the organizational ethos, its leadership, employer brand, the intrinsic culture, nature of work and pay. Hence pay by itself is being viewed as an insufficient differentiator. “Organizations will continue to consolidate their Total Rewards philosophy, aimed at optimizing the value for the employer as well as the employee,” says NS. Rajan, National Head and EMEIA Leader - People & Organization at Ernst & Young.
Monisha Chadha is Senior Manager - Business Advisory Services, Human Capital