Everything You Need to Know About Total Rewards Strategy

HR Services
(HRD & OD Consultants)

What is included in a total rewards
strategy?
A total rewards strategy compliments an organizations
employee acquisition and retention strategy and is
typically comprised of the following six elements:
• Compensation –
• Benefits –
• Performance management –
• Recognition –
• Work-life effectiveness –
• Development –

strategy?
Compensation – as a means to
provide incentive and
encourage retention,
employees can receive
fixed or variable pay for services
rendered.

What are Different Types of
Employees Compensation?
• Compensation plans vary from country to country.
• For example, in the US, health benefits often make up a
large part of an employee’s compensation and benefits
package.
• Whereas in parts of Europe, parental leave, childcare, and
lunch expenses are more common.
• There are two main types of compensation:
 Direct compensation (financial)
 Indirect compensation (financial & non-financial)

Direct Compensation
• Direct compensation is a financial (or monetary) form of
compensation.
• Here are the four main types of direct compensation:
1. Hourly / Daily Wage:
 Hourly / Daily wages are often provided to unskilled, semi-
skilled, temporary, part-time, or contract workers in
exchange for their time and labor.
 Jobs where some employees receive hourly wage include
the retail, hospitality, and construction industries.

What are Different Types
of Employees Compensation?
Direct Compensation
1. Hourly / Daily Wage:
 Employees who receive hourly / daily wages are usually
able to earn overtime pay. This pay consists of any
additional hours worked outside of their set contract.
 When setting your employees’ wages, you need to be
compliant with the local minimum wage legislation.

Direct Compensation
2. Salary:
 Annual salaries are typically provided to most full-
time employees or skilled employees and those
who fill management positions.
 A salary often indicates that the organization has
invested in this employee for the long-term future.
 Examples of employees who receive a salary
include teachers, accountants, doctors, and retail
and hospitality managers.

Direct Compensation
2. Salary:
Both hourly / daily wages and salary make up an
employee’s base pay or base salary.
3. Commission
 Commission is a common form of compensation
provided to employees in sales roles.
 It will usually be based on a predetermined quota or
target. The higher the quota reached, the higher the
commission will be.

Direct Compensation
3. Commission:
 Commission rates are often based on various specified
factors, including revenue and profit margins.
 Some employees will work on commission only or obtain a
salary with commission.

Direct Compensation
4. Bonuses
 Companies often offer bonuses to employees based on
year-end business results or the individual meeting their
set goals. Sometimes, the decision is at the manager’s
discretion.
 Bonuses can be paid annually, quarterly, or even after the
completion of each project.
 Both commission and bonuses fall under incentive pay,
along with piece rate, profit sharing, stock options, and
shift differentials.

Direct Compensation
4. Bonuses:
 However, bonuses can also be paid without an employee
meeting a particular target. For example, if the business
has had a great year and decides to reward everybody. In
this case, the bonus would be classified as variable pay.
 Tips are also a common form of compensation in people-
based industries, particularly hospitality.
 Another umbrella of direct compensation is deferred
pay which includes savings plans and annuity.
 Merit pay is often given to an employee who meets their
targets or performs well in their role.

Indirect compensation
• Indirect Compensation is still a financial form of
compensation since it has a financial value. However,
employees do not directly receive it in cash form. That’s
why certain types of indirect compensation are viewed as
monetary, while others are deemed non-monetary. This
often varies between organizations.
• Indirect compensation is often known as employee
benefits or perks of the job.
• Here are some common examples of indirect
compensation:

o Equity package
 Equity as part of a compensation package essentially
means the employee is offered equity (ownership) in the
company, either through shares of stock or the option to
buy such shares.
 An equity package is common at start-up companies.
These businesses may be low on cash or funding and need
other incentives to attract and retain employees.

o Stock options
 This form of compensation entitles employees to purchase
a set number of shares at a fixed price after a certain
period.
 This is different from an equity package because the
employee will not have any ownership in the company.
 Many stock options require employees to work between
three to five years before they can access this
compensation.

o Benefits:
 Typical employee benefits usually include:
 Health Insurance,
 Life Insurance,
 Retirement Plans,
 Disability Insurance,
 Legal Insurance, and
 Pet Insurance.
 Healthcare is a common benefit in the US, as discussed,
since it’s expensive to purchase. Whereas, in the UK,
healthcare is free on the NHS.

o Benefits:
 Retirement funds and pension plans are also common
benefits that employees look for when considering a new
role at a new organization.
 A survey found that 48% of job seekers in the US said they
would be more likely to apply for a job that came with
good benefits.
 So although the base pay you offer is important, thinking
about your overall compensation package is essential.

o Non-monetary compensation:
Non-monetary compensation includes benefits like:
 Paid or Non-paid time off
 Flexi-time
 Learning and Development Opportunities
 Parental Leave
 Childcare
 Company cars
 Phones or Laptops, and
 Meals.

o Total compensation
• An employee’s total compensation consists of a
compensation package made up of all the applicable
types of compensation listed above. The total
compensation can (and will) often include different
rewards and benefits at different job levels.
• A total compensation statement is helpful for employees.
They get a clear idea of everything they’re entitled to
from the start and the different types of compensation
on offer. For example, splitting out base pay, bonuses,
and commissions will help employees understand what
they are automatically entitled to and what they need to
meet targets to earn.

 You could arrange the compensation into two different columns:
direct compensation and indirect compensation. Or you could go
a step further and split the compensation out into different sub-
categories within each of those—such as healthcare, a company
car, stock options, and a pension fund.
 Each new hire should receive a full, clear report of their total
compensation and have a manager to approach with any
questions. This means that all managers should have at least a
basic understanding of the compensation package on offer. They
should be able to explain how it works, and answer any
questions that arise.

 Research has shown that when an organization is progressive and
transparent with compensation management, employee engagement rises,
turnover falls, and your employer brand gets a boost.
 Therefore, HR teams must be strategic in the total compensation packages they offer
employees and how they present this through all stages of the hiring and employment
process.
 A basic set of compensation is required by law, so your team must
ensure compliance with these ever-changing laws state. A generous compensation
package will inevitably help you stand out from your competition and attract the right
kind of talent to your organization, in addition to helping you retain your existing
employees.

strategy?
Benefits – indirect and non-
wage programs that provide
security for employees and
families

What are the four major
types of employee benefits?
• Traditionally, most benefits used to fall under one
of the four major types of employee benefits,
namely:
 Medical insurance
 Life insurance
 Retirement plans
 Disability insurance
• Nowadays, however, the list of employee benefits
continues to grow. We’ll take a look at different
examples of employee benefits below.

Types of employee benefits
every HR practitioner should know
• In its 2019 Employee Happiness Index, HR tech
company Benify distinguishes 4 categories of employee
benefits:
 Benefits at Work
 Benefits for Health
 Benefits for Financial Security
 Lifestyle Benefits

1. Benefits at work
• This includes working hours & leave, skills
development, food & beverage, and employee
clubs, activities & gifts.
 Working hours & leave:
Think of flextime here for instance. Flextime gives your
employees the possibility to decide about their working
hours and/or the location they want to work from.
Other examples include additional holidays and, one of
the other benefits employees value most, paid parental
leave.

1. Benefits at work
 Skills Development:
Rapid technological developments and the fact that
people change jobs more often make skills
development more important too.
Skills development, however, is not just an important
benefit for (younger) employees, it’s also essential for
organizations if they want to remain competitive.

1. Benefits at work
 Food & Beverage:
We already mentioned the meal vouchers in France.
Other benefits that fall into this category include free
lunches, fruit, and coffee.
 As an added bonus, free lunch and fruit are also a good
way to promote healthy eating habits at work.

1. Benefits at work
 Employee clubs, activities & gifts:
There are heaps of possibilities when it comes to this
category of the employee benefits package: knitting
clubs, running groups, (video) game nights, Secret
Santas, anniversary gifts, you name it.

2. Benefits for health
Think of health and wellness and healthcare here.
 Health and wellness:
More and more companies have employee wellness
programs. The possibilities are endless
and examples of employee wellness programs vary
from a simple gym membership to full suite
solutions that include physical, mental and financial
wellness.

2. Benefits for health
 Healthcare:
Healthcare benefits also come in different shapes and
sizes. Think of physiotherapy and chiropractic sessions,
for instance, but sometimes fertility treatments and
psychological support can also be included.

3. Benefits for financial security
The number one thing here are pension plans. Other benefits
for financial security are insurances, financial benefits for
employees, and personal finance benefits.
 Pension Plans
Interestingly, according to the research study, pension
plans are considered as a very important benefit by every
generation, but they’re not among the top ten most
appreciated benefits.

3. Benefits for financial security
 Insurances
As we mentioned above, in some countries health
insurance is something that comes with the simple fact
of being an employee.
Other types of insurance benefits for employees cover
parental leave or injury.

3. Benefits for Financial Security
 Financial benefits:
Think of commissions, bonuses and the possibility for
employees to buy shares of the company they work for.
 Personal finance benefits:
The Benify report too shows that stress about personal
finances has grown bigger over the past year. Yet
another reason for employers to seriously start thinking
of benefits such as advice about loans and savings. In
other words: employee financial wellness.

4. Lifestyle benefits
Lifestyle benefits consist of work-life balance and mobility.
 Work-life balance:
As employees increasingly attach importance to their
work-life balance, it’s no surprise that benefits in this
area become more popular too.
Examples are childcare, grocery delivery, and legal
services.

4. Lifestyle benefits
 Mobility:
Mobility benefits can make your employees’ life a lot
easier. Because even if they can work from home or
elsewhere, they’ll still have to come into the office –
or workplace – regularly. This category covers things
like public transport and cars but also bicycles and
carpooling.

What types of employee benefits are
most appreciated among the different
generations?

The Right Compensation Package
• The right compensation package will help you
attract and retain talent.
• Understanding employee benefits and types of
compensation and creating attractive
compensation packages for all your employees is
essential to attracting top talent to your
organization and keeping those employees happy.

The Right Compensation Package
• Many organizations offer similar wages and salaries, so if
an employee is choosing between two different job
offers, they are likely to compare smaller details included
in the compensation plan.
• An organization that offers small perks like free lunches
and extra vacation time is likely to be more appealing
than an organization that provides nothing of the sort.
• Therefore, your employee compensation plan is integral
to helping you build and maintain a strong team. It forms
a large part of your employee value proposition.

strategy?
Performance management –
the alignment of organizational,
team and individual efforts to
achieve business goals.

What is An Effective Performance
Management System?
An effective performance management system is one in which the following
are done:
• The performance management cycle is continuous and not
annual
• Leadership, executive, and upper-level management buy-in to
performance management has been secured
• Making certain verbal performance exchanges and reviews are
significant and not just routine
• Verifying your managers, are both willing and capable of
delivering result-oriented performance management on a daily
basis
• Utilizing user-friendly performance management software that
grants you visibility of performance management activity.

Purpose of a Performance
Management System
• To improve the company profit margin:
Performance management improves business
performance by reducing staff turnover which helps to
boost the company profit margin thus generating great
business results.
• To guide personnel along a suitable career path:
In line with best practices worldwide for performance
management, personnel in a supervisory role are
expected to guide the staff under them along a clearly
defined and progressive career route.

Management System
• To furnish staff with valuable progressive feedback:
Prompt real-time feedback makes performance
management systems run by HR more engaging and
proactive.
• To ensure staff attains their SMART goals:
Company staff can only attain goals set for them and
surpass expectations when they are absolutely clear
about what exactly is expected of them. Goals that are
regularly set, that are short-term, and which are
frequently discussed are often more effective.

Management System
• To ensure employee goals relate to and advance
organizational objectives:
Human resources employ performance management
systems to aid staff in seeing the nexus between their
individually assigned goals and the overall organizational
strategy. This gives the meaning and purpose employees seek in
their careers.

Types of a Performance
Management System
• General Appraisal:
A constant interaction between the manager and employee all year
round.
• 360-Degree Appraisal:
Feedback from employees about other employees.
• Technological Performance Appraisal:
Evaluation of an employee’s technical proficiency.
• Employee Self-Assessment:
Employee’s self-appraisal as compared with that of his
direct line manager.

Types of a Performance
Management System
• Manager Performance Appraisal:
Evaluation of the manager involving feedback from both the team and
clientele.
• Project Evaluation Review:
Appraisal to ascertain the level of an employee’s expertise on the job.
• Sales Performance Appraisal:
Judgment of a salesperson’s goals versus results obtained via targets met.

Performance Management System
Stages
• Plan:
 Reach a consensus on SMART goals
 Generate a private development plan
 Re-assess personnel’s job description and revise the role profile
where required
• Act:
 Attain set objectives
 Execute role
 Put into effect personal development plans

Stages
• Track:
 Frequently monitor progress made
 Get regular feedback
 Counter obstacles
 Instruct and guide
• Review:
 Re-evaluate accomplishments
 Pinpoint lessons learned
 Deliberate on career objectives
 Concur on future action steps

Implementing a
• Undoubtedly, a modern performance management system helps to
improve the individual productivity of a team.
• However, the key to achieving that is proper implementation.
• These are ways you can implement a performance management
system:
 Clarify expectations:
Clearly state in specific terms the output and
attitudes expected of employees.

Implementing a
 Observe and Assist Performance:
Watch attentively as the plan is put into action and intervene
where and when necessary to ensure compliance.
 Evaluate Performance:
Assess outcomes and/or behavior in the process of task
execution.
 Interact and Positively Review:
Discuss performance, share observations, request for
employee feedback, and jointly innovate on how to
improve in the future.

What are the Components of a
Performance Management System?
• Setting Goals:
Setting realistic goals for employees inspires them to strive
to achieve better results which impact positively on the
company’s overall productivity.
This is because individual goals should be aligned with
departmental goals which in turn should be a subset of
organizational goals.
• Planning:
The qualities and degree of expertise the employee
should develop in order to meet objectives are set out for him or
her. These objectives form part of the organizational strategy.

• Communication and collaboration:
A good performance management system aids in
building an atmosphere of free open ongoing
communication about the team, tasks assigned, and
challenges encountered. Constant communication
motivates the team, keeps everyone on the same page
and makes you proactive.
• Performance evaluations:
These are regular short term ‘check-ins’ to assess how well
an employee is performing on tasks or assignments
allocated to him or her. Allows for mid- course correction
when deviations are detected.

• Performance reviews:
These reviews which can be annually or quarterly, allow the staff
first to self-evaluate themselves before supervisors rate their
performance. In recent times the introduction of 360-degree
evaluation has greatly enhanced the process and increased team
productivity.
• Good performance recognition:
A critical aspect of a performance management system is the
recognition and reward for high performers. This creates an
atmosphere of fair play and a level playing field within the
organization.

• Feedback:
This component of a performance management system gives you
the opportunity to point out personnel areas of weakness, room for
improvement, and strategies on how to achieve it. Such employees
are more likely to be productive than those not exposed to this
process.
• Learning and Development:
Active learning and development which is an integral part of a
performance management system should be promoted aggressively.
It should be ongoing and will help staff attain their performance
potential.

strategy?
Recognition – formal or
informal programs that
reinforce employee actions or
performance that support the
organization’s strategy.

Types of
Employee Recognition
• Employees can be praised or appreciated for any given
possibilities like personal accomplishments, team
accomplishments, milestones, length of service, etc.
• There are different ways they can receive appreciation from,
on the basis of which employee recognition has been
categorized into following types.
 Top-down recognition
 Peer-to-peer recognition
 Customer-to-employee recognition

Types of
• Top-down recognition:
In this system, employers/managers/supervisors witness, approve
and appreciate the contributions of employees. Recognition can be
tangible like an award, gold stars, etc. or intangible like verbal praise.
For example: Nathan’s sales number exceeded his quota for this
month. To recognize his accomplishment, the manager felicitated
him with “Employee of the Month” award for his valuable
contribution.

Types of
• Peer-to-peer recognition:
In this system, all the members of the organization
are empowered to recognize and acknowledge the
contribution of every other member.
For example: Despite an already busy schedule,
Julie from marketing department manages to help
her colleague Suzanna at customer service
department who is having a difficult time handling
the customers at the desk. For her contribution,
Suzanna gives Julie a gold star.

Types of
• Customer-to-employee recognition:
In this system, customers acknowledge the
employees for the valuable service they receive.
For example: At Trendz Salon, a customer was
extremely impressed with Jahir (a barber)’s
attention to details and his end result.
The customer verbally praised him for his good
work and thanked him sincerely.

strategy?
Work-life effectiveness –
practices that actively support
efforts to help employees
achieve successes at work and
home.

The Categories of
Work-Life Effectiveness
• These categories of support for work-life effectiveness address
the most important intersections between the worker, his or
her family, the community and the workplace. They include:
 Workplace Flexibility
 Paid and Unpaid Time Off
 Health and Well-Being
 Caring for Dependents
 Financial Support
 Community Involvement
 Management Involvement/
Culture Change Interventions

The Categories of
• Workplace Flexibility:
The Workplace Flexibility category may contain, but is not
limited to the following programs:
Full-Time Options:
 Flextime
 Telecommuting (working remotely)
 Compressed workweek
Part-Time Options:
 Part-time schedule
 Job sharing
 Phased return from leave(maternity or other)

The Categories of
• Paid and Unpaid Time Off:
The Paid and Unpaid Time Off category may contain,
but is not limited to the following benefits:
 Personal days/vacation
 Paid holidays
 Paid family leave for new parents (fathers as well
as mothers)

The Categories of
• Health and Well-Being:
The Health and Well-Being category may contain, but is not limited to
the following programs:
 Employee Assistance Programs (EAP)
 Concierge Service
 Workplace Convenience Services
 Fitness Center Affiliations
 On-site Work-life Seminars (e.g., Stress Reduction, Financial
Planning, Parenting, etc.)
 Short-Term Disability (STD)
 Long-Term Disability (LTD)
 Family and Medical Leave
 General Leaves of Absence

The Categories of
• Caring for Dependents:
The Caring for Dependents category may contain, but is not limited to
the following services:
 Child care:
o Child care resource and referral services
o Child care discount program at national providers
o Emergency backup child care service (two options: center-based and in-
home care)
 Elder care:
o Elder care resource and referral services
o Long-term care insurance
o Emergency backup elder care service

The Categories of
• Financial Support:
The Financial Support category may contain, but is not limited to the
following benefits:
 401(k) plan
 Personal financial planning service
 Pension plan
 Adoption reimbursement
 Tuition reimbursement (student aid/loan programs)
 Dependent care flexible spending account
 Health care flexible spending account

The Categories of
• Financial Support:
 Voluntary benefits (e.g., auto, home, pet insurance)
 Mortgage assistance program
 Vision discount plan
 Pre-tax parking and transit benefits
 Accident insurance
 Cancer insurance
 Legal assistance plan

The Categories of
• Community Involvement:
The Community Involvement category may contain, but is not
limited to the following programming:
 External outreach:
o Community volunteer program
o Matching gift program
 Internal sharing:
o Shared leave program (donating personal/vacation time to
others facing emergency situations, such as a child with
terminal illness or other family catastrophe)
o Disaster relief fund

The Categories of
• Management Involvement/Culture Change Interventions:
The Management Involvement/Culture Change Interventions
category may contain, but is not limited to the following:
 Diversity/inclusion initiatives
 Women’s advancement initiatives
 Work redesign (efforts to reduce work overload
and burnout)
 Team effectiveness
 Work environment initiatives

strategy?
Development – tools and
opportunities for employees to
hone their skills and
competencies for the sake of
their short and long-term
careers.

Factors Contributing to
Employee Development
1. Training:
Not only for onboarding, but professional training also
has its benefits and usages spanning across various
spheres.
Training employees results in better productivity,
improved efficiency, boosted competency and
promotes brilliance.

2. Mentoring:
• Mentoring has a myriad of benefits. A whopping 71% of Fortune 500
companies make use of mentoring programs to impart better
employee guidance.
• With the right amount of skill, structures, effort and contribution on
the managerial end, mentoring can give visible results. The mentor
and mentee relationship can cause learning and growth in a guided
and safe manner.
• By simply interacting with employees, organizations can find out the
problems and provide practical solutions for coaching if needed.
Such coaching or training coming from skilled managers provide for
better learning opportunities.

3. Personal Development:
The employees of an organization will be able to relate to the
work culture even more if they are treated with dignity, respect
and equality.
An add-on will be if the organization showed just the right
amount of interest in their personal development too.
Apart from developing professional competence, the employee
development plans must entail features that nurture their
personal growth as well.

Everything You Need to Know About Total Rewards Strategy

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