Total Rewards: All of the tools available to the employer that may be used to attract, motivate and retain employees. Total rewards include everything the employee perceives to be of value resulting from the employment relationship.
Throughout history, employers have been challenged with attracting, motivating and retaining employees. From the simplest barter systems of centuries past to the current complex incentive formulas of today, the organizational premise has been the same: Provide productivity and results to our enterprise and we will provide you with something of value.
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The 'It' Factor: A New Total Rewards Model Leads the Way
This April 2006 workspan article explains the model in detail, as well as provides terms and definitions for the five key areas of total rewards: compensation, benefits, work-life effectiveness, performance and recognition, and development and career opportunities.
In the earliest years that the fields of compensation and benefits were recognized as professions, practice was based largely on formulas that served the entire employee population in an organization. Salary structures were just that -- rigid and highly controlled -- and benefits programs were designed as a one-size-fits-all answer to a homogenous work force.
In the 1970s and 1980s, organizations recognized that strategically designed compensation and benefits programs could give them the edge in a rapidly changing environment. Organizations were responding to:
Global economic development and the emergence of multinational firms
A much more competitive business environment
Diversification of the work force to include workers who didn't fit the sole breadwinner, head-of-household model of the '50s and '60s
New government mandates related to employee benefits
Rapidly rising benefits costs that prompted flexibility in programs to reduce costs.
Suddenly, the relatively simple compensation and benefits programs of the past were requiring consideration of their strategic impact and relationship to one another. Integration became a key, and compensation and benefits professionals emerged as critical strategic partners in their organizations' leadership -- a position still occupied by leaders in the field today.
During the 1990s, companies experienced unprecedented challenges including:
Dramatic changes in the workplace, including increased awareness of conflicts caused by family, home and work demands.
Workforce demographic changes that challenged the traditional working-father, stay-at-home-mother model of previous decades.
Fewer resources available for pay increases.
Astronomical increases in health-care costs in some countries.
Rapid decline of defined-benefit pension plans as a financially viable retirement model.
Tremendous advances in technology and the emergence of new business opportunities.
Geographic movement of many manufacturing and service roles.
Advancement of pay-for-performance practices.
Unprecedented mergers, acquisitions and global competition.
Collectively, these forces and others caused business leaders to scramble for ways to improve efficiency, effectiveness and marketplace viability. HR professionals -- particularly those specializing in compensation and benefits -- were challenged to contain costs and contribute to improved business results. These professionals were at the forefront of designing and implementing programmatic changes that have shaped the next generation of compensation and benefits. The results have included improved alignment of pay and performance, tighter controls on benefits costs, and more relevant and valued employee rewards programs.
Forward-thinking professionals realized that programmatic advances would not be enough. While program efficiencies and cost controls have been pivotal for survival, many organizations have recognized that an integrated and enriched "value exchange" between an employer and its employees can accelerate velocity and success.
The concept of total rewards emerged in the 1990s as a new way of thinking about the deployment of compensation and benefits, combined with the other tangible and intangible ways that companies seek to attract, motivate and retain employees. Flexible companies and start-ups were able to deploy these concepts rapidly, while other organizations have struggled with entrenched organizational structures, practices and culture that have slowed or prevented progress.
During the past decade, various total rewards models have been published. While each approach presents a unique point of view, all of the models recognize the importance of leveraging multiple programs, practices and cultural dynamics to satisfy and engage the best employees, contributing to improved business performance and results.
Increasingly, it has become clear that the battle for talent involves much more than highly effective, strategically designed compensation and benefits programs. While these programs remain critical, the most successful companies have realized that they must take a much broader look at the factors involved in attraction, motivation and retention. And they must deploy all of the factors -- including compensation, benefits, work-life, performance and recognition and development and career opportunities -- to their strategic advantage.
WorldatWork Total Rewards Model
As the association representing the professions comprising total rewards, WorldatWork has served as a focal point for intellectual-capital development and dialogue about this topic. In 2000, after facilitating discussion with leading thinkers in the field, WorldatWork introduced a total rewards framework intended to advance the concept and help practitioners think and execute in new ways. The model focused on three elements:
The Work Experience
Balance (of work and life)
Up to this point, the association had focused solely on compensation and benefits. Yet, specialists and generalists alike agreed that compensation and benefits -- while foundational and representing the lion's share of human-capital costs -- cannot be fully effective unless they are part of an integrated strategy of other programs and practices to attract, motivate and retain top talent. Thus "the work experience" aspect of the first WorldatWork total rewards model included aspects of employment that may be programmatic or just part of the overall experience of working. For instance, recognition (acknowledgement) may be part of a formal rewards program or may be as simple as a thank-you from the boss or a co-worker. Workplace flexibility (part of work-life) may manifest itself as a formal telework program or as having a culture and practices that embrace work-life flexibility.
As companies were exposed to total rewards, understanding of the concept advanced rapidly. In fact, the concept has become the practice in many companies. While the term didn't even exist a decade ago, today departments and jobs include the term. A September 2005 survey of WorldatWork members revealed that more than 90% of respondents use the terms "total rewards," "total compensation" or "compensation and benefits" to describe the collective strategies deployed by their companies to attract, motivate and retain the talent needed to be successful.
During the past several years, the concept of total rewards has advanced considerably. Practitioners have experienced the power of leveraging multiple factors to attract, motivate and retain talent; high-performing companies realize that their proprietary total rewards programs allow them to excel in new ways. At the same time, human resource professionals, consulting firms, service providers and academic institutions have made significant contributions to our understanding of total rewards.
Total Rewards Today
From 2000 to 2005, the bodies of knowledge associated with total rewards became more robust as practitioners experienced the power of integrated strategies. Organizational and departmental structure changes allowed for better integration, and professional understanding improved as well. Advanced literature, research and case studies accelerated visibility for total rewards beyond the HR profession, garnering notice from line managers and, indeed, the C-suite.
Given this advanced thinking and the increased importance of total rewards as a core business strategy, WorldatWork convened teams of volunteers -- leading professionals in the field -- to create an enhanced view of total rewards. The result: a comprehensive model that demonstrates the context, components and contributions of total rewards as part of an integrated business strategy.
Elements of Total Rewards
There are five elements of total rewards, each of which includes programs, practices, elements and dimensions that collectively define an organization's strategy to attract, motivate and retain employees. These elements are:
Performance and Recognition
Development and Career Opportunities
The elements represent the "tool kit" from which an organization chooses to offer and align a value proposition that creates value for both the organization and the employee. An effective total rewards strategy results in satisfied, engaged and productive employees, who in turn create desired business performance and results.
The elements, as WorldatWork has defined them, are not mutually exclusive and are not intended to represent the ways that companies organize or deploy programs and elements within them. For instance, performance management may be a compensation-function- driven activity or may be decentralized in line organizations; it can be managed formally or informally. Likewise, recognition could be considered an element of compensation, benefits and work-life.
Context for Total Rewards
The WorldatWork model recognizes that total rewards operates in the context of overall business strategy, organizational culture and HR strategy. Indeed, a company's exceptional culture or external brand value may be considered a critical component of the total employment value proposition. The backdrop of the WorldatWork model is a globe, representing the external influences on a business, such as:
Cultural influences and practices
The Exchange Relationship
An important dimension of the model is the "exchange relationship" between the employer and employee. Successful companies realize that productive employees create value for their organizations in return for tangible and intangible value that enriches their lives.
Total Rewards Strategy
Leveraging Five Elements to Attract, Motivate, Retain
Performance and Recognition
Development and Career Opportunities
The Exchange Relationship
Total rewards valued by employees
Time, talent, effort and results
Context of Total Rewards
External influences (competition, industry, regulation, etc.
Geography (location of workforce)
How the Model is Used
The current model is intended as intellectual capital to help professionals and to guide the programming and content provided by our association. WorldatWork presents this new model to:
Represent the profession's conceptual framework for total rewards
Serve as a tool for practitioners to use with management in their own organizations
Depict the official WorldatWork model of total rewards
Serve as a foundation and guidepost for intellectual capital development in the profession
Become a tool for academics, consultants and others to support their intellectual capital endeavors.
Total Rewards Total rewards is the monetary and non-monetary return provided to employees in exchange for their time, talents, efforts and results. It involves the deliberate integration of five key elements that effectively attract, motivate and retain the talent required to achieve desired business results. The five key rewards elements are:
Performance and Recognition
Development and Career Opportunities
Total rewards strategy is the art of combining these five elements into tailored packages designed to achieve optimal motivation. For a total rewards strategy to be successful, employees must perceive monetary and non-monetary rewards as valuable.
Compensation Pay provided by an employer to an employee for services rendered (i.e., time, effort and skill). Compensation comprises four core elements:
Fixed pay -- Also known as "base pay," fixed pay is nondiscretionary compensation that does not vary according to performance or results achieved. It usually is determined by the organization's pay philosophy and structure.
Variable pay -- Also known as "pay at risk," variable pay changes directly with the level of performance or results achieved. It is a one-time payment that must be re-established and re-earned each performance period.
Short-term incentive pay - A form of variable pay, short-term incentive pay is designed to focus and reward performance over a period of one-year or less.
Long-term incentive pay -- A form of variable pay, long-term incentive pay is designed to focus and reward performance over a period longer than one year. Typical forms include stock options, restricted stock, performance shares, performance units and cash.
Benefits Programs an employer uses to supplement the cash compensation that employees receive.
These programs are designed to protect the employee and his or her family from financial risks and can be categorized into the following three elements:
Pay for Time Not Worked -- These programs are designed to protect the employee's income flow when not actively engaged at work.
At work (breaks, clean-up time, uniform changing time)
Away from work (vacation, company holidays, personal days).
Work-Life A specific set of organizational practices, policies, programs, plus a philosophy, which actively supports efforts to help employees achieve success at both work and home. There are seven major categories of organizational support for work-life effectiveness in the workplace. These categories encompass compensation, benefits and other HR programs. In combination, they address the key intersections of the worker, his or her family, the community and the workplace. The seven major categories are:
Performance A key component of organizational success, alignment of organizational, team and individual performance is assessed in order to understand what was accomplished, and how it was accomplished. Performance involves the alignment of organizational, team and individual effort toward the achievement of business goals and organizational success.
Performance planning - is a process whereby expectations are established linking individual with team and organizational goals. Care is taken to ensure goals at all levels are aligned and there is clear line of sight from performance expectations of individual employees all the way up to organizational objectives and strategies set at the highest levels of the organization.
Performance - is the manner of demonstrating a skill or capacity.
Performance feedback - communicates how well people do a job or task compared to expectations, performance standards and goals. Performance feedback can motivate employees to improve performance.
Recognition Acknowledges or gives special attention to employee actions, efforts, behavior or performance. It meets an intrinsic psychological need for appreciation for one's efforts and can support business strategy by reinforcing certain behaviors (e.g., extraordinary accomplishments) that contribute to organizational success. Whether formal or informal, recognition programs acknowledge employee contributions immediately after the fact, usually without predetermined goals or performance levels that the employee is expected to achieve. Awards can be cash or non-cash (e.g., verbal recognition, trophies, certificates, plaques, dinners, tickets, etc.).
The value of recognition plans is that they:
Reinforce the value of performance improvement
Foster continued improvement, although it is not guaranteed
Formalize the process of showing appreciation
Provide positive and immediate feedback
Foster communication of valued behavior and activities.
Development and Career Opportunities
Development A set of learning experiences designed to enhance employees' applied skills and competencies; development engages employees to perform better and leaders to advance their organizations' people strategies.
Career Opportunities A plan for an employee to advance their own career goals and may include advancement into a more responsible position in an organization. The organization supports career opportunities internally so that talented employees are deployed in positions that enable them to deliver their greatest value to their organization.
Development and career opportunities include the following:
New technology training
Attendance at outside seminars, conferences, virtual education, etc.
Self-development tools and techniques
On the job learning; rotational assignments at a progressively higher level
Sabbaticals with the express purpose of acquiring specific skills, knowledge or experience.
Access to experts/information networks -- association memberships, attendance and/or presentation at conferences outside of one's area of expertise
Exposure to resident experts
Formal or informal mentoring programs; in or outside one's own organization.
Apprenticeships with experts
Internal job postings
Career ladders and pathways
Providing defined and respectable "on and off ramps" throughout the career life cycle
An Integrated Total Rewards Strategy
Culture Culture consists of the collective attitudes and behaviors that influence how individuals behave. Culture determines how and why a company operates in the way it does. Typically, it is comprised of a set of often unspoken expectations, behavioral norms and performance standards to which the organization has become accustomed. Culture change is difficult to achieve because it involves changing attitudes and behaviors by altering their fundamental beliefs and values. Organizational culture is subject to internal and external influences; thus, culture is depicted as a contextual element of the total rewards model, overlapping within and outside the organization. Source: Schein, E. (1990) Organizational Culture, American Psychologist, February, Vol. 43, no. 2, 109-119
Environment Environment is the total cluster of observable physical, psychological and behavioral elements in the workplace. It is the tangible manifestation of organizational culture. Environment sets the tone, as everyone who enters the workplace reacts to it, either consciously or unconsciously. Because they are directly observable and often measurable, specific elements of the environment can be deliberately manipulated or changed. The external environment in which an organization operates can influence the internal environment; thus, environment is depicted as a contextual element of the total rewards model, overlapping within and outside the organization.
Attraction The ability an organization has to draw the right kind of talent necessary to achieve organizational success. Attraction of an adequate (and perpetual) supply of qualified talent is essential for the organization's survival, and it is one of the key planks of business strategy. One way an organization can address this issue is to determine which "attractors" within the total rewards programs brings the kind of talent that will drive organizational success. A deliberate strategy to attract the quantity and quality of employees needed to drive organizational success is one of the key planks of business strategy.
Retention An organization's ability to keep employees who are valued contributors to organizational success for as long as is mutually beneficial. Desired talent can be kept on-staff by using a dynamic blend of elements from the total rewards package as employees move through their career lifecycles. However, not all retention is desirable, which is why a formal retention strategy with appropriate steps is essential.
Motivation The ability to cause employees to behave in a way that achieves the highest performance levels. Motivation is comprised of two types:
Intrinsic Motivation -- Linked to factors that include an employee's sense of achievement, respect for the whole person, trust, appropriate advancement opportunities and others, intrinsic motivation consistently results in higher performance levels.
Extrinsic Motivation -- Extrinsic motivation is most frequently associated with rewards that are tangible such as pay.
There also are defined levels of intensity with regard to motivation:
Satisfaction -- how much I like things here
Commitment -- how much I want to be here
Engagement -- how much I will actually do to improve business results.
Another key plank of the business strategy, motivation can drive organizational success.