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Effective total rewards strategies

Effective total rewards strategies

By Dana Sohn who can be contacted at www.aon.com; Dana_Sohn@aoncons.com

In the early 1990s, hot topics in compensation management were broad banding, broad-based equity programs, market pricing/

market education, and global total reward strategies. Back then, it seemed simple enough. Just add up all the pieces of compensation from HRIS and report them to the employee. But in the world of compensation management, nothing is that simple. For total reward to be meaningful, all systems must work together to effectively measure total staff investment and illustrate for employees that salary is a small piece of the pie.

A decade ago, the process for implementing a total reward strategy might have looked like that outlined in the box below. At the time, the total reward statement was a quantum leap in compensation thought and communication. Both managers and employees liked the ability to see their 401(k) match on the same page as their bonus. It also gave them the needed line-of-sight to value their benefits as part of their overall "package." Like today, many employers spent over 40% of their expenses on compensation and benefits alone. However, back then, most executives were more concerned about their bonuses than their benefits and saw value in having an employer-provided statement of how much they made.


Today, perspectives are changing. If your company uses a total reward strategy, you should be asking these questions:

# How often should total reward be used: once a year, at year-end, or year-round for all employees, including new hires?

# What elements of direct and indirect compensation should total reward encompass? How do you value these elements?

# Does your HRIS calculate and store all of these values?

# Do your managers consider total reward when making decisions?

# Do your executives understand and support total reward as a strategy?

To understand why these issues are important, consider the essential elements of any corporate strategy: senior managers must buy into it, managers and employees must understand it, and all systems must be able to accommodate it. When one of these elements is missing, conflict arises. Compensation surveys, communications strategy, and HRIS implementation are among some the biggest issues in implementing an effective total reward strategy.

>> SURVEYS: Surveys, usually on the leading edge of compensation measurement, have traditionally ignored certain elements of total reward. For example, equity compensation has only just started to consider broad-based enough to be included in some surveys. Still, valuation issues cause most surveys to ignore non-cash compensation elements, making benchmarking total reward almost impossible. If more companies using a total reward strategy were to ask their survey provider to include these elements, they would be more likely to be addressed.

>> COMMUNICATIONS: Companies often do not have the resources to develop an effective communications strategy around compensation. When "marketing" your compensation and benefit programs to your employees, ask these questions:

# Have you ever communicated to them the total value of their rewards?

# Do they have plan materials/ documents for compensation elements (base pay, bonuses, long-term incentives)?

# Do they understand how pay decisions are made?

# Are the performance elements they are measured against understandable and tracked periodically?

# Do they have someone to call with questions?

These issues explain why employees will undervalue their total reward without targeted and specific communications, even if you are paying them above market.

>> HRIS. Few HRIS systems support total reward as a compensation element or the valuation of total reward elements as a corporate strategy. For those that haven't implemented an HRIS lately, modifying a new HRIS to support total rewards is an expensive proposition. In this case, many companies create databases outside of their HRIS to combine their total reward elements with which they generate communication materials.

Think of the additional value you could generate by providing your employees an estimate of how much you value their services or by simplifying compensation management for your managers. But until communication strategies, systems, executives, and external data sources support such an initiative, you will be unable to measure and communicate your total staff investment and prove to employees that salary is just a small piece of their annual compensation. Until then, total reward will remain nothing more than a theoretical concept.

* Reprinted by permission


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Gary Watkins

Gary Watkins

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