What Is the Value of Total Rewards Compensation?

by Ruth Mayhew, Demand Media
A total rewards approach to compensating employees is more than just salaries and bonuses.


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The human resources professional community has expanded how it defined the discipline generally known as compensation and benefits to rename it "total rewards." The definition of compensation and benefits was rather limited--mainly the perception of it--to mean what you pay employees, and the types of benefits such as medical coverage, income protection options, vacation and sick time.

Components of Total Rewards

Total rewards is a relatively new term coined by members of the human resources professional community and adopted by human resources associations, such as the Society for Human Resources Management and WorldatWork, an association primarily for compensation professionals.

Formerly referred to as simply compensation and benefits, total rewards takes on a more creative and broad definition of the ways employees receive compensation, benefits, perks and other valuable options. WorldatWork defines this new term: "Total rewards include everything the employee perceives to be of value resulting from the employment relationship."

Why Rename It?

The renaming of compensation and benefits can be attributed to several factors. Small businesses and large corporations alike are affected by the economy, and thus are quick to devise more creative and less-costly options to reward employees. Small businesses with smaller budgets are prone to consider leveling actual compensation and providing benefits to minimize the expense of maintaining a satisfied workforce.

For example, under the old reference to compensation and benefits, employers considered the cost of an employee's salary, the employer versus employee cost for medical coverage, and the value of vacation and sick pay for each worker. Renaming these activities gives employers the motivation to engage in more creative ways to reward employees. Rewards do not always have to be cost of living increases, salary increases for excellent performance and the cost of having employees out of the office for sick days or vacations.

Assessing the Value

The value of total rewards is high, simply because of the wider variety of factors that comprise total rewards. In addition to salaries and wages, total rewards may be broad structures of compensation and benefits package. On the other hand, total rewards may include many noncash incentives and recognition. A total rewards program might include on-site childcare and athletic gym membership. Some companies allow their employees use of the company's retreat or vacation dwelling, very beneficial for travelers who don't want to wipe out their vacation money on lodging. Other substantial perks can include tuition reimbursement, payment for attendance and completion of professional development activities, or opportunities for employees to design their own schedules with arrangements such as telecommuting. All of these rewards are valuable, although there isn't an enormous cash outlay with which you must be concerned.

Adding Value

When you consider total compensation in the form of total rewards, the added value is remarkable. Consider the following scenario: You have a top-performing employee whose base salary is $40,000, and you assume responsibility for all costs of health insurance at an approximate cost of $300 per month, or $3,600 per year. Your company's bonus structure rewards $3,000 to employees who receive above-average performance appraisals, and historically your salary increases have been approximately 5 percent annually. You own the downtown building that houses your office, so employees have free parking. You also have an on-site gym and cafeteria. Time off with pay--for any reason--is five weeks per year. Finally, your company believes in developing future leaders; you pay tuition costs for twice-yearly professional development activities per employee. In this scenario, the employee's perks, benefits and professional development add more than 50 percent to her base salary, bringing her to $60,675 for an annual compensation package.

Here to Stay

The phrase "total rewards" seems to be here to stay, because it's caught on so well with human resources leaders everywhere. There are jobs for total rewards managers and specialists, which means a compensation and benefits professional could qualify if she has deep knowledge of the traditional concepts of compensation aligned with the creativity to develop a total rewards system that improves job satisfaction, retention and dedication among your employees.

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