The Evolution of Total Rewards: How Companies Earn Employee Loyalty

If you are looking to improve your company’s Total Reward Strategy, this post will help to understand what is a Total Rewards strategy and learn how to design an optimal Total Reward program for your employees.

April 12, 2022 By Enad Abu Naser Share on Twitter! Share on Facebook! Share on LinkedIn!

More than just a buzzword that carried itself over from the 1990s and survived the test of time, Total Rewards nowadays exists at the intersection of several strategic topics for a company. The Total Rewards approach taught HR to consider a holistic consideration of all aspects of work experience, not just the basic compensation and pay. The major change we are seeing now is that leaders are beginning to realize that Total Rewards matters to businesses on a strategic level.

We know that employee experience impacts companies. We can even argue that people are the most critical business asset. We’ll look into what constitutes a positive employee experience through the lens of Total Rewards. Ensuring that rewards packages work for our employees brings us to the goal I believe we all share, to strike the balance of give-and-take and nourish a positive company culture and employee experience. A successful Total Rewards program in place ultimately leads to healthier companies capable of tackling challenges thrown at them. However, designing a TR program does not come without challenges.

➡️For more information about how Total Rewards strategy takes care of your employees’ needs, explore Designing a Successful Total Rewards Strategy. 

Keeping up with the rapid changes we see nowadays, Total Rewards programs and HR tech have evolved immensely. I have witnessed very different models of Total Rewards at work. Even though the strategy differs from organization to organization, the successful total rewards programs have one thing in common: focusing on employee loyalty. Modern companies can no longer afford to ignore this crucial aspect of the business. 

The main question I’ll try to answer in this blog post is how a good total rewards strategy helps companies win employee loyalty. Whatever the industry, loyal employees are the ones who face the customers, deliver goods and services and generate revenue for your organization. We need those employees to feel at home during working hours, and it is our task to design the optimal Total Rewards plan that hits the sweet spot, the loyalty of our employees.

How have Total Rewards programs evolved?  

To fully understand the evolution of the Total Rewards programs, we need to go back in time to the beginning of the Industrial revolution. Back then, the state was not invested in the treatment of workers, and companies were only concerned with recruitment, training, and managing their workers on a very basic level. Often, the workers experienced instability, low wages, long hours, and safety concerns were not taken into account. 

However, the newly built factories housed many workers at once, and a change in manner and speed of production brought with it a myriad of ways that changed the concept of work. At the precipice of the new era, the relationship between companies and employees needed to change, too.

In the late 19th century, specifically at the beginning of the 20th century, employees started organizing into unions, demanding a new set of rules that would alleviate their position. Employees realized that while they may be dispensable individually, they were collectively indispensable to their employer. With time, unions had more influence, and with the state’s interference, employers slowly began changing attitudes towards their workers. A combination of compensation and benefits was made available to employees. That’s when we start hearing about the concept of Total Rewards.

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Why Companies need Total Rewards 

With all the changes in our lifestyle nowadays, we are on the cusp of another shift. We see many differences in what employees want and what keeps them satisfied, and it varies from generation to generation, from industry to industry. What’s more, technical advancement brings so many possibilities to employers nowadays. If there’s one lesson to be taken from the past, we need to adapt and evolve our strategies with the changing times.  

We keep hearing about the Great Reshuffle, and the reason behind it is that companies are competing for top talent. An attractive rewards package is a recruitment magnet. It helps the organization attract the right people. Those who win at finding top talent will see their strategic business goals flourish, while those who don’t will struggle with attrition. 

➡️Learn about the link between Employee rewards and the positive effects rewards have on company culture: From Employee Rewards to a Thriving Culture. 

After the onboarding, companies expect their employees to be fully performing, engaged and productive, as they are the ones who will drive the business forward. Beyond attracting the right talent, retaining the talent is our next goal. 73% of disengaged employees are actively seeking new opportunities. Turnovers cause interruption, and they are costly. Work Institute’s research tells us that replacing an employee costs 33% of an employee’s yearly salary. Compared to that, the cost needed for implementing a Total Rewards strategy is negligible. A good Total Rewards program can help you future-proof your business by keeping the employees from changing jobs and keeping them positively engaged.

  

How to Design a Total Rewards Program

The biggest challenge we’re facing when looking for the optimal balance between the give and take is how to satisfy the different needs of our employees. Even those who belong to the same generation and industry can have different needs, so our task is to design a total rewards program that fits a specific employee instead of applying a cookie-cutter approach to all our employees.

To find that sweet spot that motivates our employees, we need to personalize our strategy and focus on the overall experience. Company culture, the relationships within the company, company values, how people treat each other, and the physical appearance of the workplace – all these factors influence employee experience.

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Pay and benefits are common financial incentives for rewarding well-performing employees. However, are you paying attention to special moments in your employees’ lives? When you mark the moments that matter and create an atmosphere of appreciation, that is how you nourish your employees and create opportunities for growth. According to TINYPulse, 78% of US workers say that being appreciated motivates them at their job. 

Providing non-monetary incentives such as recognition and appreciation fuels the inner ties between your employees that boost their overall experience. According to a Gallup poll, 61% of employees are looking for a better work-life balance and personal well-being. If you manage to produce a positive employee experience, these employees will become your ambassadors. So to summarize, it takes a deep and honest assessment of company culture and employee needs to develop a win-win solution.

How to Measure the Success of an Optimal Reward Program 

There is no such thing as one size fits all when it comes to Total Rewards. The needs, desires and overall setup of what keeps an employee happy changes over time. What this means for us, Total Rewards professionals, is that we have to keep improving and being on the lookout on the effectiveness of our strategies. For that, we need employee feedback beyond the outdated yearly or bi-yearly performance reviews. We also need to be quick to react to the competitive job market changes. 

We see a significant rise in expenditure on the non-monetary rewards, and we see the immense impact of non-monetary rewards on employee engagement simultaneously. According to the IRF 2019 Trends study and IRF Signature Study, in the 1990s, the growth in non-monetary rewards was around 25%. Now, it’s expected to grow more than 80%. 

Work-Life Balance

To measure the success of a Total Rewards program, both parties need to be served. Both the employee and the organization should get something out of the reward plan. The employee needs to satisfy a need, and the organization needs to achieve a level of performance or demonstrate a behavior. If neither side of the equation, nor even one side of it, achieves its goals, it cannot be considered a successful reward plan.

To make sure that a reward program or plan is successful, we need to look at multiple aspects from the employee side as well as the organization side:

Make sure it rewards performance and competence: You can do that through providing motivational rewards for employees’ performance and competencies. It should drive business success and encourage key behaviors.

Is it affordable and can we monitor it? Make sure the cost of the designed plan is affordable, sustainable over time, and balanced against market dynamics.

Ensure differentiation and flexibility: Check if the reward plan meets the expectations and priorities of different workforce groups and provide the necessary flexibility.

Communicate it and be transparent: Make sure your employees understand the purpose of the reward plan, its principles and mechanisms with two-way communication channels and feedback. 

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The Impact of Technology on Total Rewards and the Future  

Nowadays, the technology available to us changed the way we live and work, and Total Rewards is not an exception. More than 6 billion smartphones are active in the world today. The amount of data is growing, too. There are nine times more data available today than two years ago. In all that noise, we need to ask ourselves, are we getting our message across?  

There is already a myriad of online solutions and platforms that help organizations offer a variety of non-monetary rewards. The now outdated standard expenditure on recognition is about 1% currently, but that will undoubtedly change. We need the proper tools and data that tell us what is best for our employees and us, what needs to be changed, and the time frames. 

The HR technology allows us to reach a large number of deskless and desktop workers instantly, which matters a great deal because even today, in the midst of all the technology and a tsunami of data around us, communication remains the pain point of most organizations. What good is a total rewards program with non-monetary incentives if they are not communicated properly? 

➡️What keeps employees loyal? Learn about the most popular perks: Top 40 Employee Perks to Retain Employees in 2022. 

Another trend I see happening is that we are witnessing a quick dying out of skills and just as fast the emergence of new skills. We could say skills are the new oil. While many routine jobs are disappearing due to automation, new job titles appear and will keep emerging as technology advances further. 

The other influence is artificial intelligence, AI, and robotics. AI is already in place to some extent in the HR tech space, and it helps big tech companies collect and analyze data on how we think, feel, and predict our behavior. AI will soon become affordable on a larger scale, which will significantly influence HR and total rewards. AI will be able to match an employee’s family status, age, education, career stage, job, skills, life preferences and aspirations with the organization’s total rewards opportunities, to help them select appropriate benefits and employers to refine their rewards offerings. We will also see more data analysts and data scientists in the HR field in the future, especially in total rewards, to guide us and help us make the right decisions based on data.

Conclusion

The potential difficulties of not having a solid Total Rewards strategy are indisputable. Employee branding, talent attraction, and retention directly impact business outcomes. Businesses lose money due to employee turnover and disengagement. Moreover, in Grant Thornton’s survey of almost 250 senior finance leaders, 68% of leaders stated they expect their companies to experience a talent shortage this year. More than half (53%) reported that the deficit would affect their business. The industry is rapidly evolving, and we are all in competition for great talent who will carry our objectives through. A solid Total Rewards strategy in place mitigates these hardships and makes the company’s goals employees’ own.

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