The Total Reward Renaissance
The Total
Reward Renaissance
The future
of reward is one that will fit perfectly with the changes in the working world
and meet the needs of all those within it.
The world of
work is changing rapidly. Advancements in technology and evolving workforce behavior
have been turbocharged by the pandemic and years of lockdown. The way we work
now – and the way we will work in the future – requires serious changes from organizations
to meet expectations and secure the right talent.
When it
comes to rewards, we analyses the various ways to appreciate your employees
better. Usually, rewards can be divided into three main categories:
· Intrinsic vs
extrinsic rewards,
· Non-financial vs
financial rewards,
· Membership vs
performance-based reward
Intrinsic
vs Extrinsic Rewards
Intrinsic rewards:
Rewards that are non-tangible but results in higher levels of
job satisfaction. Intrinsic rewards make employees feel valued in an organization
— for instance, impressive job titles, personal achievements, career growth,
and praise.
Extrinsic rewards:
Tangible rewards that staff receive upon doing a good job.
Extrinsic rewards is about improving employees' performance through
appreciation — for example, bonuses, raises, and gifts.
We need to find a balance between extrinsic (performance) and
intrinsic (motivation).
Non-financial
vs Financial Rewards
Financial rewards:
Positively adding to the overall employees' financial status.
For instance, bonus and salary raise.
Non-financial rewards:
Does not provide any financial gain to the employee. It
focuses on recognizing employees through employee benefits such as gym
memberships, parking space, gift cards.
Non-financial rewards are more reasonable for companies to
reward employees because:
· Long term
effects as opposed to financial rewards. Employees are more likely to continue
enjoying the benefits. Financial rewards only give one-time satisfaction.
· The staff feel
more comfortable about discussing their rewards with their colleagues.
· For the same
performance, financial rewards need higher investment.
· A more
reasonable choice for SMEs.
Membership
versus Performance-based Rewards
Performance-based rewards:
They are allocated based on the employee's performance. The
compensation is given in incentive systems, group bonuses, or commissions.
Membership-based rewards:
They are given in the form of benefits and services provided
to employees, in the form of the annual bonus, company vacation, and upgraded
office furnishing.
4 types
of employee reward systems
While there
are several ways to reward employees, here are four options you can implement
to help boost your team's morale:
1.
Monetary
You can
create a reward system based on monetary compensation, like a bonus. A bonus
can give your team members something to look forward to and to work efficiently
to earn. You might give out bonuses either at the end of the year or every six
months. This type of reward system works best with employees motivated by
money. It can also help create bonds within your team if you make earning the
bonus a friendly competition.
Besides
bonuses, here are other monetary rewards you can use in your program:
· Profit-sharing
plans
· Stock options
· Additional paid
time off
· Tuition
reimbursement
2.
Non-monetary
For teams
that prefer perks other than bonuses, a non-monetary rewards system may help
motivate them. This kind of system offers them something. For example, you can
present them with a small prize or fringe benefit if they were the top
performer in their department. This can encourage your team members to work
more productively, which can help projects reach their deadlines on time or
early.
Here are
other non-monetary rewards you can use to encourage the company's employees:
· Catered lunches
· Opportunities to
leave work early
· Remote work if
possible
· Flexible work
schedule
3.
Assistance
An
assistance system is when companies support employees in maintaining a healthy
work-life balance by providing services that benefit their physical and mental
health. This program type may help employees have clearer minds and healthier
bodies, which can improve their work performance. While not a traditional
reward, assistance programs can help employees feel valued and supported.
Benefits you
can offer under an assistance program include:
· Discounts to
local health services, like gym memberships or spa treatments
· On-site visits
from mental health professionals
· Instructional
sessions on techniques to manage stress, grief or other challenges
4.
Recognition
A
recognition rewards system is about sharing an employee's accomplishments with
the rest of an organization. This can look like having an employee of the month
celebration or an end-of-year awards ceremony where you can talk about several
employees' work-related victories. By doing this, you can encourage team
members to work harder to receive this level of acknowledgment.
Recognition
can be as simple as offering verbal praise to your team members daily, weekly
or monthly. You may also write them a note detailing how much you appreciate
them and their dedication to their role. This is another way to help create a
positive working environment for everyone.
The 5
elements of a total rewards system
“Total
Rewards encompasses the elements – compensation, well-being, benefits,
recognition and development – that, in concert, lead to optimal
organizational performance.
One of the
most critical areas that isn’t changing fast enough is the way the workforce is
rewarded, via pay and benefits, bonuses and compensation. Organizations
continue to adhere to decades-old approaches despite the transformation of the
workplace and their staff. New frameworks and models are needed to ensure the
reward strategies are fit for purpose, serving both a changed workforce and
attracting talent in the years ahead.
Why the
future of work will depend on the future of total rewards
We are
moving to more dynamic workforce models, where traditional jobs will be
replaced by less defined, more dynamic roles in increasingly agile work
environments, characterized through less hierarchal and faster, team-based
working attitudes. The psychology of ‘employment’ has shifted and the shelf
life of skills is diminishing – ‘jobs for life’ could be history
and the new skills-based, project-work economy is emerging. In unison,
expectations of individuals continue to change.
How do Total
Rewards practices and practitioners deal with such meta trends? A lot of the
current approaches seem not fit to enable purpose-led strategies in the post
information age. We do not only need to break down functional silos, but also
rethink some pay concepts that appear archaic. I am convinced we need to
strategically transform rewards across the full spectrum including work, people
and culture - towards a more inclusive way how we reward and recognize people,
grounded in a human centered experience with highly increased flexibility and
focus on growth to support continuous up- and reskilling.
Many years
ago, the purpose of HR and related practices was basic, manual and
non-strategic. In the late 1970s, a call for more strategic aspects became
louder and the first concept of Rewards following debates around intrinsic and
extrinsic motivation was established. However, this development was disrupted
by technology in the following decades, being driven by a need to harmonize
systems, standardize processes and subsequently a need of global data models
and benchmark practices. The proposition became “efficiency” and led to what
could be described as traditional Compensation & Benefits philosophies
linked a with rack and stack type of approach to performance and engagement
management. Obviously, the approaches advanced over time and many organizations
started to adjust singular elements, such as the link between performance
ratings and incentives. Some themes, like pay-for-performance, became somewhat
of a religious discussion instead of trusting into what data and science would
tell us. However, the current pandemic shows us even more that a more holistic,
human centered, and long-term view is necessary.
Personalization,
choice and technology in the consumer world change our expectations when we
come to work. A one-size-fits-all approach, with the same information and same
programs provided to all, delivered and administered via outdated technology,
is no longer good enough. The recognition of and support of the increasingly
varied and complex personal needs of a diversified workforce is required to
ensure inclusion as well as a strong, talent segment-based, human experience
that ultimately adds business value. And with culture becoming the new
structure, a sense of belonging becomes the glue for a fluid workforce.
Many
companies were on total reward transformation journeys long before the concept
of future of work and pandemic emerged. The pandemic has simply accelerated the
pace of these transformations.
The COVID-19
pandemic has significantly changed the world of work, disrupting business
operations in an unprecedented manner and accelerating several future of work
trends overnight. HR and total reward professionals have found themselves at
the front lines of their organizations’ COVID-19 response, having to quickly
incorporate emerging trends into their people strategies, including:
· Customer,
employee, and societal behaviors and expectations have shifted
· Transformation
is now about revolution, not evolution
· Work, as both a
place and an activity, has changed
· Leadership has
never been more needed, or so remote
· HR’s role is now
broader, more important, and more digital
Further, it
has also shifted the power that employees wield within the employer-employee
dynamic. These forces are combining to have monumental influence on the
definition of future of TR frameworks.
Companies
that recognize these trends and demonstrate agility in adapting their TR
frameworks so that their employees are at the center of their efforts, can
elevate employee engagement levels, improve financial performance, and ultimately
generate long-term value creation.
Furthermore,
as organizations navigate performance management amid the COVID-19 crisis, a
key part of their strategy should be to revise total rewards to reflect changes
to both financial and non-financial incentives. Non-financial rewards will
become increasingly significant as organizations seek to retain talent with
flexibility in a post-COVID workplace. Total rewards have also taken on
increasing importance given the cultural context and conversation around equity.
The current disruption provides a unique
opportunity for organizations to holistically rethink their total rewards
philosophy.
Organizations
must demonstrate that they have structured their rewards fairly by
transparently communicating the link among business performance, individual
performance, and rewards. While our focus here is on salaried employees, the
same principles apply for hourly non-exempt workers.
What’s
shaping the future of work?
For those
currently in the workforce, the changes are palpable. Traditional hierarchies
are being challenged by evolving contractual agreements, and this in turn
demands new operational models. Flexibility is becoming key, for both the organization
and the worker, whether in regards roles, location or hours of work, or
expectations.
There is an
increasing diversity in all senses of the word, with this broader workforce
bringing expectations around greater personalization and control over their
working life. Changes are not only influenced by the lockdowns of recent years;
society is changing, as is technology and the digital advancements that are
increasingly becoming accessible to industry to replace certain roles.
Innovations such as automation are seen more frequently, but these serve to
widen the skills gap as training and development fails to keep pace with the
new roles that remain alongside tools and digital solutions.
A broader
view of reward
As
organizations go through change, ensuring they have an engaged, supportive and
productive workforce can require more than raising salaries.
“We need to
think from a total reward perspective. Financial and non-financial rewards can
be utilized to create a compelling proposition that will motivate staff to
align and support change,” White says.
The culture,
purpose and experience offered by an organization, along with its social
footprint in the community, can add to the appeal.
“The
assumption that cash-based rewards are the only thing that matter to employees
is being challenged by more contemporary views around the intrinsic motivators
that people have around work,” White says.
Examples
could be flexibility, education, professional development or technology
training.
Some people
might want additional leave, or to structure things so they can spend more time
with their children. There is also opportunity to develop the purpose of an
organization, and how employees can engage with the social good that the
organization does.
Coping
with the “new normal”
It is time
for legacy total reward approaches to be redefined. Savvy HR professionals
recognize the need to demonstrate agility in making real-time,
business-critical decisions to safeguard and engage their workforces, while
embracing cost-efficient and digital solutions to monitor and track program
enhancements and to support long-term value creation. To achieve these
objectives, availability and access to HR and reward data has become critical.
To understand how HR professionals are coping with their “new normal,”
is that fragmented total reward
data—which is typically spread across disparate and bespoke systems—has long
frustrated attempts to promote seamless, integrated, and digital access
throughout the performance year. However, forced thinking around the
re-imagination of work is accelerating interest in digital reward management
solutions that can connect directly into a company’s HR suite, integrating
ad-hoc and legacy manual processes while digitally documenting appropriate
levels of review and authorization.
To cope with
the “new normal” there is need for real-time access to reliable HR data
includes total reward insights:
· The demand for
customized and personalized total reward programs that can support remote,
office and hybrid workers are increasing
· Total Rewards
Optimization (TRO) and cost reduction and administrative optimization have
become major driving forces in potential total reward redesign. It helps your
organization find its Total Rewards sweet spot — the intersection that aligns
what and how much you spend with what your employees value most and least
across the rewards you offer — while uncovering how reward changes affect
employee behavior and performance on the job. The ultimate goal of TRO is a
high return on the financial capital the organization invests in rewards and a
high return on the human capital (knowledge, skill and talent) investment made
by employees.
· An
ever-increasing focus on diversity and inclusivity, both financial and non-financial
data is required to ensure total reward adjustments do not adversely impact
particular groups of employees.
Flexibility
is the price of entry
Only a few
years ago, flexible work was the talk of the town as an easy win and key
differentiator in the total rewards game. As the world was forced to adopt
hybrid and remote ways of working, it’s difficult to see how any organization
can revert to the days of yesteryear.
Could
autonomy be the new currency of work?
Another
differentiator that one of the HR leaders at the table is beginning to trial,
is cryptocurrencies and entering into the metaverse with their total rewards.
They are finding digital talent specifically, hard to find and hard to keep,
and also unable to compete with tech giants where they have benefits like
variable pay where packages are inclusive of stock options for example. Having
insight into what certain employee personas – and those tough talent pools
specifically – are after, and what they’re interested in, in their downtime can
lead to wonderful insights that can be leveraged on the total rewards front.
Total
rewards need to be more about flexibility and inclusivity and need to be more
than money. Employees need options and they need to feel seen and heard. HR
leaders have got a great opportunity ahead of them to reshape their worlds of
work through total rewards. The past two years have been about keeping the
wheels on and putting the wings on as we leave the runway, but now is the time
to make strategic decisions that will impact business objectives and make great
places to work for our employees now, and for the future.
Aligning
incentives to achieve desired outcomes
Incentives
are a common way of motivating staff to achieve goals, but organizations need
to think carefully about how they use them. Ben Travers, Partner, Performance
and Reward, KPMG, says in times of transformation, incentives should be
designed to boost staff support and the overall success of the change.
“Incentives
can drive specific improvements around key activities, behaviors or metrics in
a business. You can drive that alignment from the executives, through to the
managers, and through the front line, with a consistent focus on measures that
are tightly linked to productivity,” Travers says.
For sales
roles, incentives could be structured around the quality of contact they have
with clients and conversion into outcomes suitable for client needs.
“For teams,
incentives can be used to help reinforce a collaborative culture,”
This could
apply when colleagues are located in different cities and countries, connected
only by technology. Shared incentives can help drive common goals and enhance
success of the change program.
In those
situations, particularly if you’re trying to drive a cultural outcome, the
rewards may be cash or non-cash. You might create opportunities for interesting
team experiences, or different types of celebrations that are more about
reinforcing a team culture.
Reward
strategies need an upgrade
Considering
all this, reward strategies are fast becoming obsolete. There has been little
to no change in the way organizations reward their staff since the 1990s, with
a ‘one-size-fits-all’ approach lingering despite the rapid evolution of all
other aspects of work. Greater consideration needs to be made for the
psychology and philosophy of the future workforce; reward needs to be seeking
to motivate and engage staff, to make them feel valued and support them to be
at their best.
Indeed, the
workforce expects these new strategies and is increasingly prioritizing their
fulfilment and well-being over the demands of an employer. There is an
expectation of greater flexibility and personalization – expectations fostered
by cultural behaviors such as streaming and e-commerce, ‘next-day delivery’ and
ample choice – and will increasingly see training and development as critical
parts of the reward package.
It’s not
all about the workers
It’s
important to stress that this evolution isn’t all to the benefit of the employee;
organizations stand to gain if they are able to monitor the trends and respond
to optimize them. For example, organizations can take advantage of the fluid,
flexible workforce by becoming more agile in their staffing, helping to lower
their costs by hiring contractors, gig economy workers or freelancers as
needed.
We’ve moved
from what used to be a strong co-dependence between employer and employee, to a
situation in which both can develop economic resilience. The challenge is that
employees want to live, work and earn differently – the organization benefits
from flexibility – but still need financial security. This is where more
progress is needed; the framework and strategies that underpins pay and reward
are stuck in the past, as is legislation and wider social norms, as the world
of work evolves rapidly.
What does
future reward look like?
The future
of reward will be one built on different, more appropriate philosophies. Organizations
need to move from pay secrecy to transparency, which will empower the workforce
while enabling an employer to hire where and who is needed.
Personalization
needs to be a core component. Workers will need to be able to personalize the
pay offer, with broader models to cater to a diverse workforce and meet the
changing societal value system in which well-being and work-life balance are
increasingly prized (we will see more companies offering ‘unlimited annual
leave’, for example). Rewards and benefits will become more creative and
flexible, and respond to life stages, values and needs of the individual.
Pay will
also shift from performance-based to skills- and competency-focused, allowing
an employer to gain the most out of their employee while also encouraging
learning and development, helping to increase retention. Automation will play
an increasingly large role in delivering this new reward system, putting
choices into the hands of employees. This will foster loyalty, make staff feel
valued and keen to be at their best – which in turn helps the organization.
Some
companies are already exploring new systems for paying and rewarding their
employees, especially since the global pandemic shifted workforce expectations
so seismically. For example, one company ran a pilot to assess staff interest
in being able to personalize their compensation, choosing upfront if they want
to keep their base/bonus pay mix, or electing to shift some of the base amount
to higher bonus in the mix, at a rate of 1.25 per dollar of base salary
foregone. Or vice-versa, moving variable pay to base pay and a rate of 75%.
More employees opted for the higher base pay number, which made it less
expensive overall and yet had a higher retention value for staff.
Another
company provided the option for staff to receive a portion of their base pay in
cryptocurrency rather than in fiat. This was especially appealing for the
younger staff in the organization. Yet another implemented a long-term
incentive defined in cryptocurrency. This approach operates like a stock option
for staff and was chosen by 40% of the workforce, notably mostly those under
30. This highlights how age the broadening of the age range of the workforce is
a key factor in the need for personalization of reward because values, opinions
and risk profiles vary across demographics. Unfortunately, the company
discovered after implementation that the crypto option made tax complex for
both the organization and their employees. In fact, they were ready to set
expatriate pay in crypto currency with the advantage of a single payroll, but
taxes and forex fluctuations made it difficult. This is a reminder that
national legislation and policies fail to keep pace with the evolution in digital
technologies and the working world.
Ready for
the Reward Renaissance
These
examples show there is a long way to go to develop frameworks and systems that
are going to meet the demands and needs of a changing working world. That said,
they also should also encourage us all that many across all industries have
started to recognize the need to change their reward strategies and are
exploring new options to lay the way for the future we need.
In an ideal
world, we are heading towards a Reward Renaissance. Our single-minded
Pay-for-performance approach will co-exist along with Pay-for-development,
Pay-for-retention, Benefits-for -performance, Pay-for-location, and perhaps a
few other models that will emerge as we move boldly into this new world of work.
This will focus on pay equity and transparency of process and fairness. It will
offer employees a competitive pay package that is more aligned to their
individual needs, as well as to the culture of the organization itself. Reward
may become a large part of the decision-making process for would-be employees.
We will see
FlexPay and new technologies being used to put the reward decisions into the
hands of the employee, who will select their package based on needs, values,
motivations and their risk profile. Aspects of life such as well-being will be
as critical as financial stability, as will a space for flexibility and
guarantees around training and professional development.
It’s going
to be exciting. The future of reward is one that will fit perfectly with the
changes in the working world and meet the needs of all those within it. But it
won’t happen without a collaborative, serious effort to commit to and explore
change within the reward landscape, and the bravery to reject old models and
re-build from the ground up. Creative solutions are needed to take the steps
necessary to ensure reward and pay remains aligned with the ways in which we
work.
Future of
work organization’s total rewards framework.
1. Enhanced work
schedule and work location policies: Throughout the pandemic there has been a
significant shift to offering work schedule and work location flexibility,
where permissible. We expect post-pandemic total reward programs to become more
agile to accommodate increased usage of flexible and hybrid work models.
2. Allowances or
stipends to support remote work: To help employees adjust to remote working,
organizations have been providing allowances and/or stipends to help them
establish home offices, offset energy and internet costs and support grocery
delivery.
3. Upskilling and
reskilling: During the pandemic organizations have introduced enhanced access
to digital learning solutions, skills development resources and recognition for
certifications completed.
4. Enhanced
physical wellbeing support: The pandemic has necessitated that organizations
boost medical safety protocols, support and access. These have taken the form
of reduced financial and administrative employee burdens, such as waived
employee payments, waiting periods, and precertification requirements, as well
as the deployment of enhanced virtual tools, such as telehealth and wellbeing
apps.
5. Expanded leave
and dependent care programs: Programs implemented during the pandemic include
increased eligibility and reduced documentation requirements, expanded program
duration, expanded per diems and flexible work hours.
6. Premium pay and
one-time bonuses: In response to the burden placed on front-line and mission
critical employees, organizations have been offering premium pay and special and/or
one-time bonuses.
Five
global reward trends that drive higher employee engagement
1. Expanded scope
of total reward (TR) strategy, frameworks, and program components: Leading
organizations are extending their total reward strategies beyond traditional
compensation and benefit programs to include broader employee value proposition
(EVP), wellbeing, talent development, work environment/ schedule/ location, and
other employee experience elements.
2. Integrated cost
efficiency planning and holistic employee wellbeing outcomes: Organizations are
integrating their total reward optimization and employee wellbeing (emotional,
financial, physical and social) planning processes to develop and deliver cost
effective and sustainable TR frameworks that support organizational wellness
while retaining and motivating employees.
3. Increased reward
choice/ personalization that leverages refreshed reward segmentation profiles:
HR functions are expanding flexible reward choices to employees, where
permissible, while updating their reward segmentation/ personas profiles
(beyond typical demographics & life stage, to include work schedule and
location preferences)
4. Enhanced
consumer grade, digital total reward experience: Leaders are implementing
consumer grade digital reward tools to increase employee awareness, enrollment
and remote access. For example, instead of having to go to HR to determine
their vacation balances, employees can now readily access this information
through apps on their smart phones.
5. Embrace inclusive
and future focused reward eligibility requirements: Many World’s Best
Multinationals (WBMs) report that legacy hierarchical approaches to determining
reward program eligibility are rapidly evolving. They indicate that today’s eligibility
requirements are more inclusive across their broader employee populations and
that eligibility distinctions between full time employees (FTEs) and non-FTEs
are blurring, where permissible. Similarly, these organizations routinely
evaluate the diversity, inclusivity and sustainability of their reward
frameworks.
Five
actions organizations can take to have their total reward programs go from good
to great
While many
organizations are exploring total reward optimization (TRO) strategies that
will enhance employee engagement and mitigate potential cost increases, here
are five actions companies can undertake now to future proof their TR
frameworks.
1. Know your
data
Inventory your total reward programs, costs, funding sources, and program
utilization to understand your current state and identify opportunities to
update your TR framework. Gathering
anonymized employee data (e.g., demographics, life stages, TR enrollment,
etc.) can help HR establish a baseline
of employee preferences and potential unmet reward needs. Organizations don’t want all employees
signing up for every plan, but they do want people signing up for the plans
that are right for them.
2. Engage with
your employees
Seek employee feedback (via surveys, focus groups, interviews) that spans
employee levels, job families, demographics and geographies, to gain employee
preference insights and build stakeholder consensus. Prioritize the voice of
your employees in your review process to accelerate successful outcomes and
engagement.
3. Develop TR
straw model scenario planning
Consider a range of TRO scenarios that incorporate alternate work
schedules, work locations, employee segments, life stages and demographics to
enhance the reliability of TRO analyses and other planning models developed.
4. Leverage TR
tools with “digital intuition” and deploy continuous listening
The future of total rewards will be intuitive. When something different
happens in an employee’s life, such as marriage, divorce or birth of a child,
TR frameworks should intuitively shift to reflect the change. Companies can
leverage their reward platforms to help them be more proactive “listeners”, to
better understand what employees need, and to periodically evolve their TR
programs to meet changing needs.
5. Tell your
employee wellbeing story
Typically, one of the biggest challenges organizations face is a lack of
TR program awareness. Often, employees
don’t know what plans are available to them, how to access them or how to use
them. Leading HR functions have embraced innovative and digital/ multi modal
communication strategies to build awareness and reinforce key TR program
messages and increase plan utilization.
References
Oluwaseun
Kolade, Adebowale Owoseni, Employment 5.0: The work of the future and the
future of work, Technology in Society, Volume 71, 2022, 102086, ISSN 0160-791X,
https://doi.org/10.1016/j.techsoc.2022.102086.
Report:
Performance Transformation in the Future of Work
https://reba.global/resource/report-performance-transformation-in-the-future-of-work.html
Why the
future of work will depend on the future of total rewards
https://www.ey.com/en_gl/workforce/why-the-future-of-work-will-depend-on-the-future-of-total-reward
Rethinking
total rewards for the post-COVID era
What is a
Total Rewards Strategy? A Practical Guide
https://www.aihr.com/blog/total-rewards-strategy/
Reflection
on the transformation of Total Rewards .... while our future needs are evolving
towards value-add partnerships and flexibility
https://www.linkedin.com/pulse/reflection-transformation-total-rewards-while-our-future-collet
Reimagining
Total Rewards: How COVID-19 is Accelerating Total Reward Transformation
Total
rewards program optimization
Total
Rewards Optimization: Aligning reward investments with the employee experience, Willis Towers Watson, willistowerswatson.com
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