Developing an effective total rewards strategy is a critical step toward improving, among other things, your employee retention rates. Sure, people want to earn a high salary, but so much more goes into play during a job search. Inclusive, competitive total rewards strategies align organizations under a consistent philosophy of the value they provide. In doing so, you’ll build trust among your employees and boost engagement. So what goes into your total rewards strategy?
A total rewards strategy paints a fuller picture of what you provide for your employees beyond their paychecks. Of course, wages reign supreme for most when considering a job with any company, but peripheral perks and benefits carry more weight than ever.
To compete in this talent market, your business needs a compelling answer to the ever-present question, “What’s in it for me?” Your total rewards strategy gives you that answer. In this blog, we’ll share an overview of the components of total rewards, how to implement them, and how to measure their effectiveness.
What goes into a total rewards strategy?
Your total rewards strategy comprises five core components: compensation, benefits, well-being, recognition, and development. In some cases, you’ll see work-life balance in place of well-being, but well-being has gained a lot of steam in the post-COVID environment. So think of work-life balance as a piece of the well-being puzzle.
Gallup found that employees who are engaged but aren’t thriving in their lives are 61% more likely to experience burnout. Furthermore, they discovered that burnout costs businesses 15-20% of their payroll from voluntary turnover. As such, well-being plays an essential role in your total rewards strategy. Your package could include a wide range of things, such as ERGs, DEI initiatives, gym memberships, meditation apps, work-life balance, flexibility, and plenty more.
Compensation is a bit more straightforward. Everything you pay your employees, not just their salary, falls under this umbrella. Calculating total compensation includes salary, bonuses, stock options, and variable pay.
Similarly, accounting for employee benefits shouldn’t be too complicated. Add up the costs and value associated with health, dental, and vision insurance, as well as various leave plans, disability and life insurance, and your retirement plan.
Your rewards and recognition programs foster greater loyalty over the long term. Here, you can document awards you hand out for performance or tenure and the frequency with which you promote employees. Also, consider the simple things like how often your employees get a simple “thank you” or praise for their work.
Finally, you’ll need clear development structures. Employees need to know there’s a future for them at your company. When the goal is retaining workers, you need to outline career paths, provide learning and development opportunities, and ideally offer mentorship.
All of this may sound like a lot, and it can certainly overwhelm you without an HR expert to guide the process. However, the benefits of creating your total rewards strategy far outweigh the cost in time.
What are the benefits of total rewards?
Your organization’s best friend in a tight talent market is an effective total rewards strategy. As the U.S. Chamber of Commerce states, there are only 73 workers for every 100 job openings. You’re recruiting in a worker deficit, so if you want to fill your roles, you need something eye-catching to offer.
Moreover, total rewards improve your retention rates, saving your business significant time and money. Replacing departed employees costs, on average, 1.5-2x the former employee’s salary. Worse yet, time-to-fill has slowed to a crawl. It now takes 11 weeks to fill an open role. Throughout that long window, your remaining employees are more vulnerable to burnout because they have to cover for the lost staff.
Beyond those factors, it’s simply a matter of organizational alignment and structure. A total rewards strategy provides clarity around how you pay employees, how you support them, and what it takes to move up in your organization. Those are the cornerstones of a strong company culture, and they’ll translate directly into higher employee engagement and productivity.
How do you implement a total rewards strategy?
Getting your total rewards strategy off the ground takes diligence and communication. However, it certainly doesn’t hurt to have an HR expert like those at ADDA on hand to guide you through it. But, regardless of who you have on hand, these are, generally, the steps you should take.
First, assess the rewards you already offer. Audit your compensation and benefits for competitiveness in your industry. You may find pay equity issues when digging around your salary data, and correcting those issues should become priority number one. Additionally, take stock of career pathing, wellness perks, fringe benefits, and other total rewards factors.
Once you know where your business currently stands, start including your employees in the conversation. From management on down, listen to what people think is working and what needs improvement. This has two main benefits. You’ll hear some ideas you may not have thought of otherwise, and your team’s involvement will improve feelings of appreciation and respect.
Then, design your new total rewards strategy using your research and your employees’ feedback. Not only will you prepare the components of your total rewards package here, but you’ll also establish the goals you hope it will accomplish. We know this is easier said than done, so consider bringing in a human resources expert if you don’t already have one. Benefits, in particular, are a tough nut to crack on your own.
Finally, put your plan into action! But first, communicate the changes to your team. Once everyone is on the same page, you can safely roll out the updates and see how they perform. Crucially, your total rewards strategy doesn’t end at implementation. Moving forward, you’ll need to evaluate its effectiveness in achieving the goals you laid out.
How do you measure the effectiveness of your total rewards strategy?
Once you’ve unwrapped your shiny new total rewards package, it’s time to move into measurement mode. This requires some patience. For example, let’s say your goals were to reduce employee turnover, improve employee engagement, and decrease absenteeism. Though you’ll likely see some immediate results around engagement and absenteeism, the impact on turnover may take time to understand fully.
Your total rewards strategy is a long-term play. An effective strategy will produce the desired results. However, if you don’t see the improvement you’re looking for immediately, don’t panic. There will always be room to iterate and optimize your strategy. Make sure you maintain open lines of communication with your employees even if things are going great. Push out a steady stream of pulse and employee engagement surveys, and welcome feedback with open arms.
ADDA optimizes total rewards
Your total rewards strategy can be a make-or-break factor in attracting and retaining top talent. With the help of HR experts, your total rewards package will stand out for the right reasons. Contact ADDA today to improve your total rewards strategy.