Leaders and managers often ask me, “What’s the difference between a compensation package and a total rewards strategy?”
So to start, let’s make sure these terms are clearly defined:
— A compensation package generally only includes compensation itself, such as your employee’s salary. It may also include bonuses or commissions.
— Whereas a total rewards strategy encompasses five elements — compensation, wellbeing, benefits, recognition and development. Together, they lead to optimal organizational performance (World at Work).
I regularly help my clients differentiate between the two, get clear on what they’re currently offering, and guide them to implement (some) elements of a total rewards strategy. Here’s how the conversation usually goes.
Is Compensation Not Still “King?”
Compensation is increasingly becoming a hot topic, particularly as we’ve recently watched it go through the roof for (good) employees.
In certain environments, compensation will always be king. For example, if you’re working in an inherently dangerous profession, like a mechanic, metal worker or underwater welder, the environment will always be hazardous, which is reflected in higher pay. So these professionals expect lucrative compensation, while other employment elements are significantly less important.
But not all jobs are equal, and compensation should be situational. Employees with safe, controlled work environments expect more than compensation, as their workplace safety is not at risk.
Why Employee Benefits Packages Should Include MORE Than Compensation
Have you ever wondered why some organizations retain staff easier than others? It’s not the highly competitive salary, but generally the benefits package as a whole.
Employees who leave organizations for a salary increase elsewhere often return once they’ve experienced the new environment. The salary increase was nice, but the benefits from their original organization that added (a hidden) $10K to their base compensation, plus training opportunities, no longer existed at the new company.
For example, if your organization offers sign-on bonuses to attract employees, where does that budget come from? There’s likely a ripple effect somewhere else within the company, such as less money for employee training budgets. Your people may be excited about the extra pay upfront, but that loss of training will have a significant impact down the line.
Although sign-on bonuses may attract people initially, it’s the total rewards strategy that encourages them to stay after they’ve received (and spent) that bonus, which includes compensation, training, benefits and more.
How To Transition From “Just” Compensation To Total Rewards Packages
When it comes to designing a total rewards package for your employees, it’s not a one-size-fits-all approach. There are internal and external influences that inform how you build this package, from leadership buy-in to the product market.
External influences, like social norms and technology, are influences that we can’t control. As organizations, we can’t influence the labor market, but we need to be aware of its current state when considering a rewards strategy for our employees today.
Internal influences include factors like strategy, culture and workforce, which I go into more detail in How To Curate The Best Employee Experience. Once you have clarity on which influences are impacting your organization, you can start to create a total rewards strategy unique to your employees.
One Key Element That Often Gets Missed In Employee Packages
Believe it or not, not all rewards are monetary. In fact, successful companies these days include countless benefits related to their employees’ wellbeing, as they know work impacts life outside of the 9-5 (especially with the rise of remote work).
It could be as simple as providing access to ice-cold beverages for employees in hotter climates, creating flexible work options so your people can pick up their kids from school, or allowing employees to start an hour later if they work from home. Knowing what’s important to your workforce is key to maintaining their wellbeing.
Even encouraging your employees to feel like a participant in or comment on major global events means they don’t feel like they’re “missing out” by working at your organization. Take the Olympics for example.
There’s a lot of talk around major sporting events impacting staff productivity, with time lost through people chatting at work. But recognizing that your people are interested in these events, allowing them to spend even 10 minutes bonding with their colleagues, can be a massive contributor to workplace wellbeing. Perhaps you even bring out TVs and supply popcorn when the Olympics is on, demonstrating that you understand their needs and have the power to make organizational decisions that support them.
Wellbeing is just one of many elements proving why having a great company culture is so important for organizational success — and you need leadership buy-in to make these (sometimes seemingly subtle) changes happen.
Recognizing Your People Is Just As Important As Compensation
Another non-monetary total rewards package element is recognition.
As an employer, you can recognize your employees all day long by simply saying thank you, and it doesn’t cost you a dime. But I recommend stepping it up a notch, because meaningful, personalized recognition will have the biggest impact.
Let’s say I know an employee is going to Italy for vacation — I could offer them an extra day off to recover and return fully ready to work. This gesture wouldn’t be expected or included in their benefits package — it was given just because. Actions like these recognize your employees’ hard work and will impact them much differently than a general group gesture or an off-hand thank you in the hallway. You are specifically recognizing and rewarding them.
However, that’s not to discount the simple ways you can recognize your people as individuals, like showing up with their favorite flowers, or giving them a gas card because you know they’re shuttling kids to soccer practice. Those small gestures make more of an emotional impact, thus building your employee-employer relationship, than giving out a few hundred bucks each year as an annual bonus.
Recognition can be simple, but it has to be meaningful and it has to be personal, because when it is, it’s just as important as compensation.
Compiling The Total Rewards Package
When it comes to deciding how your organization will rank each element of a total rewards package — compensation, wellbeing, benefits, recognition and development – it’s truly a balancing act.
Getting the balance right leads to optimal organizational performance, which can be seen when your people are productive, committed and inspired.
If you need help designing your total rewards package, contact me today to get started.