Creating A Competitive Total Reward Strategy in The Workplace

According to Thompson (2002 as cited in Tsede and Kutin, 2013), to survive in the current competitive business world, organizations should move out from the traditional rewarding methods and move in towards Total reward Strategies.  It is clear that the employees in the 21st century do not only look at the salary they get when they choose an organization. The employees in the current business world are more into being recognized, praised, cared for, and valued by the organizations other than the basic remuneration (Jiang et al., 2010; AIHR, 2021). To cater to these needs of the employee's organization should research methods, which will include a package of everything the employees want in return for what they give to the organization.   Organizations should always be mindful of what factors attract the best talents and what they can do to retain and motivate them (Reilly, 2010; Tsede and Kutin, 2013; AIHR, 2021).

Many researchers show interesting methods for creating Total reward strategies to have highly engaged employees. However, it is always better for organizations to look at more than one option to win the best talent hunt. Tropman (2001, as cited in Jiang et al., 2009) brings in an equation called the “new pay” to describe Total rewards. The equation is:

 TC = (BP + AP + IP) + (WP + PP) + (OA + OG) + (PI + QL) + X

TC = Total compensation, BP = Base pay, AP= augmented pay, IP= indirect pay, WP = Works-pay, PP = perks-pay, OA= opportunity to advancement, OG = opportunity for growth, PI = psychic income, QL = Quality of life, X= any other reward that the organization can facilitate.

This aligns with Armstrong’s (2006, as cited in Hoole and Hotz, 2016) and Gross and O'Malley’s ( 2007, as cited in Hoole and Hotz 2016) description of total rewards which says that a Total reward strategy should be a combination of intrinsic, extrinsic financial and non-financial rewards. Nienaber's reward preference model (2010 as cited in Hoole and Hotz 2016) supports this idea too by highlighting that employee's monthly remuneration, variable pay, benefits, work performance, working environment, and work-life balance should be considered when developing a Total reward strategy (Figure 01).

Figure 01- Nienaber's reward preference model (Hoole and Hotz, 2016).

There are many theories organizations can apply to identify the needs of the employees when creating a competitive total reward strategy. one of the interesting methods by AIHR (2021) shows how Maslow’s hierarchy of needs theory and the five elements introduced by WorldatWork, can be linked to creating a total reward strategy (Figure 02)

Figure 02 – Maslow’s hierarchy of need theory (AIHR, 2021)

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 The interconnection has been described by AIHR (2021), as below:

 a)  Compensation:  this is related to the employee's "Physiological needs". The organizations should research other competitors’ base pays in the business world for a particular occupation and create a good base pay, which can compete to attract the best talents.

 b)  Benefits: The employers should provide health and security facilities for the employees to ensure their “Safety needs”. For example, the insurance facilities provided by the organizations should be attractive for the employees to be motivated (Hoole and Hotz, 2016).

 c) Well-being:  This is correlated with employees' “love and Belonging” needs. The organizations should look at what they can do to improve the connection of the employees with the organization. The organization should look at giving the employees flexible work hours, having savings and loan systems within the organization, having employee resource groups, etc. to let them know that the organization is there for them whenever they need assistance (Tropman, 2001 as cited in Jiang et al., 2009). This will motivate the employees.

 d) Recognition:  This correlates with employees' “Esteem needs”.  The employees need to be recognized and awarded for what they do for the organization (Hoole and Hotz, 2016; Tsede and Kutin, 2013). This has a huge impact on employees to be motivated and to do their best. Verbal appreciation is an example of recognition.

 e) Development: this correlates with the “self-actualization” needs of the employees. Organizations should look into ways of developing the talents of the employees to move forward on the career ladder (Hoole and Hotz, 2016; Scott et al. 2010; Jiang et al. 2009). If the employees see the organization wants them to be developed, they will be motivated to become highly engaged employees.

Once the organizations identify the motivational factors, the next thing is to build a Competitive Total reward strategy. AIHR (2021), discuss one way how an organization can create a Total reward strategy with the identified motivational factors as shown in Figure 03 below.

Figure 03 – How to create a Total reward Strategy (AIHR, 2021)

As per AIHR (2021), first organizations should focus on what they have in hand to build a competitive total reward strategy. Organizations should look carefully at what current organizational rewards attract and motivate employees the most. Next, the organizations should do some employee opinion surveys to identify what employees think about the current reward system. It is always encouraged for the organizations to engage employees in creating a Total reward strategy (Jiang et al., 2009). Once this is done, the organizations should include the leadership and managers to get their view on employees’ comments in creating the new total Reward strategy (WordatWork, 2006 as cited in Tsede and Kutin, 2013).  Then the organization should clearly identify its goals and priorities. This is important because all the total reward strategies should be aligned with the goals to perform well in the business world (Hoole and Hotz, 2016; Tsede and Kutin, 2013). Next, the organizations should see whether the new Total reward strategy aligns with the organizational values and cultures. All the total reward strategies should embrace the organizational values and cultures (Jiang et al., 2009; Tsede and Kutin, 2013). Then the organizations need to examine whether there is a balance between what they give and what they get from the employees. As AIHR (2021), clearly mentioned an imbalance reward system will lead the organizations to lose performance. Thereafter the organizations must check with the outer world whether the total reward strategy they create aligns with the market trends. AIHR (2021) calls out the fact that a strategy, which does not align with the trends out in the world, will not bring a competitive advantage to the organization. The next step discussed by AIHR (2021), is that the organizations should accurately communicate to the employees about the Total reward strategy. A good understanding of the reward strategy will help employees understand why they receive some rewards and why they do not get others (Reilly, 2010). Finally, the organizations must keep track of the created Total reward strategy to know how it works and to check whether their investments in creating it bring the required output for the organization (AIHR, 2021).  With all these models and methods, it is clear that the organizations should focus on more than one area to create a competitive Total reward strategy. It is the employer’s responsibility to always be mindful of what the employees need and create their total reward strategies to gain a competitive advantage which helps them to survive in the current business world.

 

References:

 

AIHR. (2021). What is a Total Rewards Strategy? A Practical Guide. [online] Available at: https://www.aihr.com/blog/total-rewards-strategy/[Accessed: 9 April 2022].

Hoole, C. and Hotz, G., 2016. The impact of a total reward system of work engagement. SA Journal of Industrial Psychology, 42(1), pp.1-14. 

Jiang, Z., Xiao, Q., Qi, H. and Xiao, L., 2009. Total reward strategy: A human resources management strategy going with the trend of the times. International Journal of Business and management, 4(11), pp.177-183. 

Reilly, P., 2010. Total reward is a capital idea. Strategic HR Review. 

Scott, D., McMullen, T., Royal, M. and Stark, M., 2010. The impact of rewards programs on employee engagement. Retrieved March, 18, p.2014. 

Tsede, O.A. and Kutin, E., 2013. Total reward concept: A key motivational tool for corporate Ghana. Business and Economic Research, 3(2), p.173.