Total Rewards: The HR Strategy that Increases Attraction, Retention, & Engagement

It’s every HR leader’s nightmare. You’re interviewing an awesome candidate for a position your company really needs to fill. It’s going great, you have good vibes, they’re a perfect values fit, the hiring manager loves them… if this job interview were a movie, it’d be Thelma and Louise…

And then they ask about benefits and compensation. Yikes.

If you’ve got uncompetitive compensation and benefits packages—total rewards, in human resources-speak— can crash your company’s best efforts to hire and retain talent. Worse, a subpar benefits offering can leave current employees feeling undervalued and unfairly remunerated. And when employees feel like that, they’ve already got one foot out the door.

It’s no wonder 63% of U.S. workers who quit their job in 2021 say they did so because of low pay, the same percentage who did so because of low opportunities for advancement. 

Luckily, a total rewards program can be HR teams’ secret weapon. Buckle up and find out how to avoid losing a great candidate on comp and benefits ever again.

What is a ‘total rewards’ strategy?

‘Total rewards’ refers to the ecosystem of advantages, both monetary and non-monetary, that an employee receives from an employer. A comprehensive total rewards strategy typically includes a mix of benefits and services, such as compensation, health insurance, wellness programs, recognition and rewards systems, and professional development opportunities.

By providing employees with a range of rewards that meet their unique needs and preferences, organizations can better retain valuable talent and improve morale and productivity across the workforce. Additionally, total rewards strategies help employers build a strong employer brand that can help attract qualified candidates when it comes time to hire or promote new employees.

 The human resources lead is typically responsible for designing and implementing a total rewards strategy alongside company leadership. Once the overarching package is agreed upon, employers calculate each employee’s total rewards and ensure that rewards are fair and equitable across the entire workforce.

Why is a good total rewards package important?

A compelling total rewards package can make or break a company’s ability to hire, retain, and even motivate the workforce.

Attract top talent

A solid total rewards strategy is critical for attracting top talent in today’s competitive job market. For example, research shows that over 63% of workerswould prioritize joining a company offering employer-supported retirement plans. By providing a comprehensive package of benefits that meets employees’ unique needs and preferences, organizations can more effectively compete for top candidates and build a positive employer brand that attracts high-quality applicants. Total rewards are a big part of having a solid talent acquisition strategy.

But just having a total rewards package isn’t enough to attract candidates. Instead, back it up with a strong communications plan around total rewards during hiring and advertising for talent. Promote your total rewards package actively to candidates rather than waiting for them to ask what’s on offer themselves. 

Retain valuable employees

In 2021 and the first half of 2022,an average of 4 million U.S. workersleft their jobs every month. That’s a total 25% increaseon the pre-pandemic levels, according to Statista.

 Employee attrition at that pace leads to increased costs for hiring and training new employees, as well as decreased productivity and engagement due to the disruption of losing key employees. No HR leader wants to lose top talent over compensation and benefits if they can help it.

 An effective total rewards strategy can improveemployee retentionby offering incentives that meet employees’ needs and keep them motivated in their roles.

Boost productivity

It’s easy to see how a compelling total rewards package can get good hires in the door and keep them around for longer. But data also indicate that well-designed total rewards packages can increase productivity, particularly with compensation.

The PwC 2022 Employee Financial Wellness Survey found that 76% of U.S. employeescite financial stress as a major distraction at work. That means up to 3 hours a month lost dealing with finances during the work day. By building a total rewards program that fairly compensates employees and provides security through employer-sponsored benefits, employers can spur an uptick in productivity and overall mental health.

Total comp, total rewards, & employee benefits: What’s the difference?

There is often some confusion between total comp, total rewards, and employee benefits, with some folks using the terms interchangeably. While all these concepts are related to the compensation and benefits offered by employers, there are some important distinctions between them.

• While total rewards refer to a total package of benefits and perks an employer provides to employees, total comp and employee benefits are subsets of total rewards.
• Total comp typically refers to any amount of money an employee receives in the form of a paycheck. That may include base salary, bonuses, commissions, etc.
• Employee benefitstypically refer to the collection of non-monetary benefits, perks, and rewards an employee receives. Think things like health insurance, vacation days, wellness programs, career development, childcare, and retirement savings plans.

You can imagine total rewards as the umbrella term, with total comp and employer-sponsored benefits as subsets.

What Are the Main Categories Within a Total Rewards Package?

There’s no one size fits all for what goes into a company’s total rewards package; that decision is based on variable factors like what kind of talent a company wants to attract, what the existing workforce asks for, and, in union situations, what gets negotiated.

That said, HR leaders typically pull rewards from 5 main buckets: 

1. Compensation or monetary rewardslike salaries, bonuses, and commissions
2. Benefits or non-monetary rewardslike retirement plans, health insurance, emergency savings-as-a-benefit, and flexible spending accounts.
3. Work-life wellness initiativesto promote workforce wellness, such as flexible work arrangements, paid time off, and employer-supported access to gyms and wellbeing apps. A service likeWellhubcan support wellbeing by giving your employees access to their favorite wellness apps and in-person gyms. 
4. Recognition programsthat honor employees for their accomplishments and contributions.
5. Career development opportunitiesto foster employee engagement and learning through skills training, mentorship programs, and job rotations.

The exact mix can have a tangible impact on what type of employee you attract and retain. For example, Gen Z workers look for employers who support wellbeing at work, with42% saying they’d quit a jobthat didn’t bring them work-life wellness. On the other hand, older workers prioritizeshoring up their pensionsand maintaining human connection and a social life at work.

Take payroll software Gusto as an example. The tech company posts its compensation philosophy, plus the non-monetary benefits offered to employees, on the website.

• Comp: Employees get baseline salary and stock-based grants to align with the company value of ownership.
• Healthcare: Gusto prioritizes inclusive healthcare benefits, such as fertility treatment and gender-affirming surgery.
• Wellbeing: The company offers flexible PTO, sabbaticals, and even free meals, not just to foster physical wellbeing, but also community.

It’s possible that through its total rewards mix, Gusto is looking to attract values-aligned individuals for whom inclusivity and work-life wellness is a priority. However, just because an individual values work-life wellness doesn’t mean they aren’t alsoremuneration-focused. Luckily, Gusto doesn’t have to choose whether their total rewards budget goes towards commissions and bonuses or wellbeing benefits. Instead, they can determine what benefits their employees value most, and implement those benefits in a balanced way.  

How to design a total rewards strategy in four steps

As we’ve seen, total rewards can be a complicated mix of varying components. HR teams need to approach strategy creation intentionally to ensure it aligns with the company culture and business goals. A four-step process can help HR teams design impactful total rewards plans:

Step 1: Audit what you already offer to employees

Compensation and benefits often develop and evolve over time rather than being designed strategically. If that’s the case with your company, start by assessing what you’re currently offering employees and determine whether the package aligns with business goals. 

A simple way to get started is to run an employee benefits survey. In the survey, get feedback from employees on what they value and are looking for. For example, the survey can ask how they feel about current benefits and what they’d like from their total comp levels, non-monetary benefits like healthcare coverage, or company events that employees enjoy most, etc. Benchmarking your current rewards package against the ideal state will help identify gaps.

 You’ll also want to define current benefits and comp by role and department. When doing this, it’s essential to assess whether benefit distribution is equitable across demographics and roles. If one demographic is over-compensated compared to others, reducing pay equity, that’s something your new total rewards strategy will seek to change. 

At the end of the audit stage, you’ll have an assessment report which offers an overview of the current package, its alignment with business strategy, and high-level recommendations for what a new rewards system should look like.

Step 2: Design a New Total Rewards System

Next, the HR team outlines a new system to attract and engage target employee segments. It’s a good idea to prioritize total rewards initiatives based on factors like ROI, impact on business goals, and competitor offerings.

At this stage, it’s helpful to frame the conversation around questions like:

• What are our values, and how can total rewards attract people who align with them?
• What behaviors should a rewards package incentivize?
• What rewards are our current team asking for?
• How much will a proposed package cost, and how much could it generate in operational efficiency? 

Once you have executive buy-in for the new total rewards strategy, it’s time to execute.

Step 3: Planning & Roll-out

Total rewards strategies need to be implemented with care and sensitivity. After all, any change to compensation, financial stability, or work-life wellness can cause anxiety for employees.

To minimize anxiety and misunderstandings, communication of the new total rewards strategy ideally starts way before the implementation. Plans can be filtered down to middle management for feedback and discussion, followed by HR-led action tours of open hours, where employees can ask questions and hear from leadership.

A phased roll-out of changes can also be helpful, particularly for small HR teams juggling many tasks at once. This can mean rolling out just a few total rewards components first and then adding on others as the team gets more comfortable with the new total rewards strategy.

Step 4: Adjust & Iterate

Over time, total rewards strategies should be monitored and adjusted to better meet the needs of employees and business goals.

For example, if there’s a lot of feedback on total comp, consider adjusting total rewards package amounts. Or, if there are significant gaps in benefits distribution among demographics and roles, you might want to create targeted packages for those groups.

Overall, total rewards strategies should be viewed as living programs that evolve and adapt.

Basic rewards don’t cut it anymore

While fair salaries and meaningful benefits are still a vital part of total rewards, it’s fair to say they’ve become, in some sense, table-stakes. For example, offering 401(k) plan participation won’t differentiate your company in a competitive labor market.

 Instead, we need to offer employees more when we design total rewards strategies and packages. Including rewards that support mental, physical, and financial wellbeing is a step towards having a total rewards package that makes all employees feel supported and able to do their best work. Employees want more than base compensation. Let’s offer it to them.

Interested in finding out how you can increase team wellbeing through total rewards? Talk to aWellbeing Specialist today! 

References 

• Gen Z in the Workplace. (2022). TalentLMS. Retrieved December 7, 2022 from https://www.talentlms.com/research/gen-z-workplace-statistics.
• Majority of workers who quit a job in 2021 cite low pay, no opportunities for advancement, feeling disrespected. (March 9, 2022). Pew Research Center. Retrieved December 7, 2022 from https://www.pewresearch.org/fact-tank/2022/03/09/majority-of-workers-who-quit-a-job-in-2021-cite-low-pay-no-opportunities-for-advancement-feeling-disrespected/.  
• Over 4 million Americans have quit their jobs for 9 months straight — and it shows how workers have changed the status quo. (March 29, 2022). Insider. Retrieved December 7, 2022 from https://www.businessinsider.com/4-million-americans-quit-9-months-labor-shortage-status-quo-2022-3.
• The retirees heading back to work. (November 5, 2022). Financial Times. Retrieved December 7, 2022 from https://www.ft.com/content/8042b200-2cdb-4b0e-a43e-4cb931a55a8a.
• 2022 PwC Employee Financial Wellness Survey. (2022). PwC. Retrieved December 7, 2022 from https://www.pwc.com/us/en/services/consulting/business-transformation/library/employee-financial-wellness-survey.html.
• We’re building a great place to work. (2022). Gusto. Retrieved December 7, 2022 from https://gusto.com/about/careers/total-rewards. 
• Why People Are Quitting Their Jobs. (July 25, 2022). Statista. Retrieved December 7, 2022 from https://www.statista.com/chart/27830/reasons-for-quitting-previous-job/. 
• Workforce Financial Well-being 2022: How Businesses Can Compete with Financial Benefits. (July 18, 2022). Sunny Day Fund. Retrieved December 7, 2022 from https://sunnydayfund.com/blog/workforce-financial-well-being-2022-how-businesses-can-compete-in-financial-benefits/.