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It’s a new world of total rewards: 4 strategies for systemic rewards

Kathi Enderes, The Josh Bersin Company
Kathi Enderes
Kathi Enderes, Ph.D., is a senior vice president and global industry analyst at The Josh Bersin Company, supporting clients and the market with evidence-based insights on all areas of HR, learning, talent and HR technology. She has more than 20 years of experience, from management consulting with IBM, PwC and EY to talent leader at McKesson and Kaiser Permanente. Most recently, Kathi led talent and workforce research at Deloitte. She is a frequent keynote speaker, author and thought leader.

The last three years have elevated the need to put people front and center in the business. From pandemic health monitoring to today’s stress mitigation issues, preventing stress and burnout is now a business issue. Many employers are focusing on yoga classes, coaching for health, EAP programs, and other ways to combat workplace stress.

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Yet, as inflation rises, layoffs are mounting, and the economy is slowing across the world, another issue has become front and center for employees: According to a recent Mercer study, pay has now become the highest priority worry keeping employees up at night.

Total rewards—a century-old concept

Total rewards—the tools and strategies that organizations use to attract, retain and motivate their employees—evolved in the early 20th century, when companies began to realize that financial compensation alone was not enough for employee engagement. Over time, the concept of total rewards has evolved to encompass a wider range of benefits and perks, also including recognition, work-life balance and career development opportunities. Today, many organizations build their employee value proposition on providing a multitude of benefits, perks and pay, aiming to create a more compelling and satisfying work environment.

The race to better benefits

Companies spend up to 70% of their overall expenses on employee compensation and benefits. Non-compensation benefits costs have increased significantly, accounting for about a third of total workforce expense. There’s often a veritable maze of perks and benefits, with some companies offering over 100 options, ranging from discounted movie theater tickets to lavish gym memberships, and from pet insurance plans to the highest life insurance benefits. The problem? As one total rewards leader told us: “Nobody can keep track of all of these benefits—not even I can remember all of them.”

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Yet, these robust pay and benefits options still don’t hit the mark. As a recent Pew research study points out, while most employees are happy with their relationships with coworkers and managers, benefits only hit the mark for every other employee. Furthermore, just 1 in 3 feel their level of pay is adequate or that they have opportunities for promotion or career opportunities.

Related: How Dow is refreshing its global total rewards for max impact

From total rewards to systemic rewards

The concept of total rewards is ready for a major overhaul. Just 9% of companies are at this level, balancing pay equity with pay-for-performance approaches and skills-based pay, providing flexibility and empowerment for employees to grow their careers, do their best work when and where they need it, and recognizing team and individual performance in the flow of work. These companies are 1.7 times more likely to grow financially, 2.4 times more likely to be considered a “best place to work” and 3.1 times more likely to innovate effectively.

Key strategies to bring rewards into the 21st century

If you are like the 91% of companies stuck in the past, here are some ways to rethink not just your rewards strategies, but your overall people strategy. When you think about your total rewards framework, go bigger than compensation and benefits. Where does pay for performance, career development opportunities, flexibility and autonomy, and pay equity fit in? How do you deliver all of these offerings? An expansive framework helps you think holistically. Such companies as Walmart, Prudential and SAP create tailored approaches fit for the needs of their workforce. Here are a few key strategies to consider on the journey to systemic rewards:

  • Focus on pay equity. When people question if their pay and rewards are fair and equitable, everything else in the company doesn’t matter much. They become disengaged, and it creates stress and burnout. Microsoft, for example, is publicly communicating pay equity progress in its diversity report, acknowledging the upside potential of a more diverse workforce, greater employee engagement and less burnout.

Related: 3 ways to make pay equity central to your compensation strategy

  • Rethink pay for performance. Most companies subscribe to a pay-for-performance philosophy, but 91% get it wrong. Yet, the right pay-for-performance approaches create trust in the organization, which is the most important element in making the company irresistible. Think about the team, not just the individual; goals, not activities; and people contributions, not just financials. And make differentiation significant, leveraging bonus pay, not base pay. P&G, Target, and McKesson reward for accomplishing values.
  • Reprioritize the benefits budget. Leading companies constantly revisit their benefits and perks and reprioritize toward business-aligned areas that add value to employees and the company: flexibility, career and recognition. Coincidentally, many of these areas are low-cost (or even no-cost). Hybrid and remote work, the 4-day work week, career pathways, talent marketplaces and work-embedded recognition programs provide substantial value with limited investment.

Related: The four-day work week: Is it for real?

  • Personalize communication. The best rewards are not worth much if employees and candidates don’t understand them. Yet, most companies use a one-size-fits-all approach for the communication of programs and strategies. Marriott, Amazon and Atrium Health focus on tailoring communication to frontline workers’ unique needs and communication channels.

In today’s employee-driven labor market, leaders need to recognize that old paradigms are obsolete and replace them with fairness, equity, the right pay-for-performance approach, skills-based pay and highly personalized and simplified benefits, thinking about rewards not as a cost factor but the highest-return investment in the future of the company.

For more, tune in to our HRE webinar (11 a.m. PST/2 p.m. April 20) where Josh Bersin and I will give a preview of our groundbreaking research on pay and rewards. For the launch of our full study, join us at HRE‘s Health and Benefits Conference, May 3-5 in Las Vegas.