Exploring Components of Total Rewards
The textbook discusses 5 key areas of a total rewards model identified by WorldatWork (pages 7-11). Review each element and then select any one of the elements and (1) provide a short definition of the element, and (2) describe why the major categories of the element are important for a total rewards package.
6 Everything That Employees Value in the Employment Relationship
The elements represent the toolkit 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 satisfi ed, engaged, and productive employees who, in turn, create desired business performance and results.
As defi ned here, the elements are neither mutually exclusive nor 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 decentralized in line organizations; it can be managed formally or informally. Likewise, recognition could be considered an element of compensation, benefi ts, and work-life.
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 model is a globe, representing the external infl uences on business, such as legal/regulatory issues, cultural infl uences and practices, and competition.
Finally, 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.
EXPLORING THE KEY AREAS
Following is a brief description of the fi ve elements of the WorldatWork total rewards model. (See Figure 1.4 and Figure 1.5.)
FIGURE 1.3 WorldatWork total rewards model.
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Exploring the Key Areas 7
Total Rewards Component Defi nition Compensation Pay provided by an employer to an employee for services rendered (i.e., time, effort, and skill). Includes both fi xed and variable pay tied to levels of performance. Benefi ts Programs an employer uses to supplement the cash compensation that employees receive. These health, income protection, savings, and retirement programs provide security for employees and their families. Work-Life A specifi c set of organizational practices, policies, and programs plus a philosophy that actively supports efforts to help employees achieve success at both work and home. Performance and Recognition Performance: The alignment of organizational, team, and individual efforts toward the achievement of business goals and organizational success. It includes establishing expectations, skill demonstration, assessment, feedback, and continuous improvement. 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 noncash (e.g., verbal recognition, trophies, certifi cates, plaques, dinners, tickets, etc.).
FIGURE 1.4 Total rewards defi nitions.
(continued)
Copyright © 2007 John Wiley & Sons
8 Everything That Employees Value in the Employment Relationship
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 engages leaders to advance their organizations’ people strategies. Career opportunities: A plan for employees to advance their career goals. 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.
FIGURE 1.4 (Continued)
FIGURE 1.5 Model defi nitions.
Total Rewards Total rewards is the monetary and nonmonetary return provided to employees in exchange for their time, talents, efforts, and results. It involves the deliberate integration of fi ve key elements that effectively attract, motivate, and retain the talent required to achieve desired business results. The fi ve key rewards elements are: • Compensation. • Benefi ts. • Work-Life. • Performance and Recognition. • Development and Career Opportunities. Total rewards strategy is the art of combining these fi ve elements into tailored packages designed to achieve optimal motivation. For a total rewards strategy to be successful, employees must perceive monetary and nonmonetary 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,” fi xed 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.
Copyright © 2007 John Wiley & Sons
Exploring the Key Areas 9
• 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.
Benefi ts 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 fi nancial risks and can be categorized into the following three elements: • Social Insurance • Unemployment. • Workers’ compensation. • Social Security. • Disability (occupational). • Group Insurance • Medical. • Dental. • Vision. • Prescription drug. • Mental health. • Life insurance. • AD&D insurance. • Disability. • Retirement. • Savings. • Pay for Time Not Worked: These programs are designed to protect the employee’s income fl ow 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 specifi c 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, benefi ts, 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: • Workplace fl exibility. • Paid and unpaid time off. • Health and well-being. • Caring for dependents. • Financial support. • Community involvement. • Management involvement/culture change interventions. (continued)
Copyright © 2007 John Wiley & Sons
10 Everything That Employees Value in the Employment Relationship
Performance and Recognition Performance A key component of organizational success, 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 a 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 noncash (e.g., verbal recognition, trophies, certifi cates, 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 employees 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: • Learning Opportunities • Tuition assistance. • Corporate universities.
FIGURE 1.5 (Continued)
Copyright © 2007 John Wiley & Sons
Exploring the Key Areas 11
• 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 specifi c skills, knowledge, or experience. • Coaching/Mentoring • Leadership training. • 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. • Advancement Opportunities • Internships. • Apprenticeships with experts. • Overseas assignments. • Internal job postings. • Job advancement/promotion. • Career ladders and pathways. • Succession planning. • Providing defi ned 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 infl uence how individuals behave. Culture determines how and why a company operates in the way it does. Typically, it comprises a set of often unspoken expectations, behavioral norms, and performance standards to which the organization has become accustomed. Culture change is diffi cult to achieve because it involves changing attitudes and behaviors by altering their fundamental beliefs and values. Organizational culture is subject to internal and external infl uences; thus, culture is depicted as a contextual element of the total rewards model, overlapping within and outside the organization. Source: Schein, E. “Organizational Culture.” American Psychologist 43, no. 2 (February 1990): 109–19. 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, specifi c elements of the environment can be deliberately manipulated or changed. The external environment in which an organization operates can infl uence the internal environment; thus, environment is depicted as a contextual element of the total rewards model, overlapping within and outside the organization. (continued)
Copyright © 2007 John Wiley & Sons
12 Everything That Employees Value in the Employment Relationship
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 qualifi ed talent is essential for the organization’s survival. One way an organization can address this issue is to determine which “attractors” within the total rewards programs bring 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 benefi cial. 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 life cycles. 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 comprises 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 defi ned 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. FIGURE 1.5 (Continued)
Compensation
This includes fi xed pay (base pay) and variable pay (pay at risk). It also includes several forms of variable pay including short-term incentive pay and long-term incentive pay. While one of the most traditional elements of total rewards, it remains a necessity for business success.
Benefi ts
While this area seems to be continuously challenged during this time of shrinking health care benefi ts and expanding health care premiums, businesses are trying to redefi ne the traditional benefi ts program. In basic form, benefi ts programs protect employees and their families from fi nancial risks. This area includes traditional
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