After reviewing all the material for the week, share in your own words, the meaning of the concept of Total Rewards, describe how

Module 1: The Total Rewards Model

Topics

Topic 1: What is the Total Rewards Model to Compensation Management?

Topic 2: The Change to Total Rewards

Topic 3: The Critical Link of Strategic Objectives and Rewards

Topic 4: Why is the Total Rewards Model Successful?

Topic 5: Conclusions

Topic 1: What is the Total Rewards Model to Compensation Management?

Think about what might attract you to work for a particular organization. Why

would you choose one organization over another, if given the opportunity?

Which organization offers you the elements surrounding your work experience

that you value most? Your answer probably is not salary alone, but many other

elements in addition.

The elements you consider of value when you compare different organizations'

offerings are unique to you. They are holistic and comprehensive. It is not merely

the pay and a few basic benefits that attract potential employees, but a wide

array of rewards known as total rewards.

Take a look at the following list of items that most influence employees'

commitment and motivation. While the study, conducted by Mercer (2007),

surfaced some similarities, there were certainly also many differences. For

example, the global study found that while workers in Asia valued base pay

above anything else, workers in the United States valued other factors, including

work‐life balance, being treated with respect, and benefits, more highly than

money alone. There were also differences among the generations. While

employees of at least 60 years of age (known as the Traditionalists) value

security and company loyalty most highly, employees between 18 and 29 (the

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Millennials) tend to value their contributions and learning opportunities, and thus

are more willing to change jobs repeatedly, while those between the ages of 30

and 42 (Generation Xers) tend to value the work‐life balance most highly

(Mercer, 2007, p. 3).

Table 1.1 What Employees Value

• Being treated with respect

• The type of work that you do

• Work‐life balance

• Benefits

• Working in an environment in which you can provide good service to

others

• Base pay

• The quality of the people you work with

• Long‐term career potential

• Having flexible working arrangements

• Learning or training opportunities

• Promotion opportunities

• Variable bonus/incentive bonus

Source: Mercer's What's Working Global Employee Survey (2007)

As you reflect on what motivates you to choose one organization over another

as your place of employment, which of the items from this list would you rank as

the most important? Be prepared to answer this question if your professor asks

it.

This discussion of why individuals select one organization over another is at the

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core of our discussion of the total rewards approach to compensation

management. In order for organizations to attract, retain, and motivate

employees with the requisite knowledge, skills, and abilities (KSAs) needed for

organizational success, a satisfying mix of the monetary, non‐monetary, and the

overall work experience must be offered. Of course, what we have just shown,

as you thought about what satisfies you, is that it is imperative to know which

segment of the population desires what mix of rewards. Without this data, there

cannot be targeted marketing.

Definitions of the Total Rewards Model

For the purposes of this course, we will use the following model and definition of

the total rewards model to compensation management. Imagine the total

rewards philosophy for the organization in the middle of a circle, with the

following shown as elements around it.

Figure 1.1

Total Rewards Model

The graphic depicts the relationship among the organization's objectives; the

requisite knowledge, skills, and abilities; the pool of potential or current

employees; the individual elements that can be offered, including monetary, non‐

monetary and other work experience elements; and the feedback system of total

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reward metrics in order to determine the total rewards philosophy for the

organization. The total rewards approach to compensation management is

strategically planning a targeted reward package to successfully attract, retain,

and motivate segmented populations of employees who possess the requisite

knowledge, skills, and abilities (KSAs) needed to achieve the organization's

business objectives.

If we look at some of the individual elements of the monetary rewards, the non‐

monetary rewards, and the work experience of value to employees, we see that

there are a large number of them. Take a look at table 1.2:

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Table 1.2 Rewards and Experience Employees Value

Monetary Rewards Non‐monetary Rewards

Work Experience

Base Pay Income Protection

Benefits

Values of the Organization

Variable Pay

Hourly/Salaried/Executive

Medical Insurance Community (Individual &

Organizational)

Deferred Compensation Vision, dental Recognition

Merit and Cost of Living

Increases

Disability Training and Development

Performance Feedback Life Insurance Promotions

Retirement Paid Time Off Sense of Accomplishment

Day Care

Employee

Assistance Program

Health‐related

Programs

Tuition Assistance

This chart depicts the many rewards that are included in the total rewards

approach to compensation management. Later modules will explain each of

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these individually and how they align holistically and comprehensively to attract,

retain, and motivate employees.

Because total rewards is a fairly new and still emerging perspective, a review of

what exactly is meant by total rewards is helpful to the overall understanding of

the larger process of strategically planning our total rewards. We also

acknowledge that the total rewards concept is also sometimes known by other

names, such as the employer/employee value proposition, the psychological

contract, the employer brand, total remuneration, and total value. However, the

term total rewards seems to be the name most commonly used, according to a

survey taken by Mercer (Salopek, 2008).

We begin with a definition by Stacey Kaplan (2007), who states that "total

rewards encompass everything that an employee values in their employment

relationship: compensation, benefits, development, and the work environment"

(p. 4). Kaplan finds that while effective total reward systems offer both current

and potential employees the holistic intrinsic and extrinsic rewards they want,

those rewards must also be aligned with the objectives of the organization in

order to justify the offerings. This means that human resources staffs that are

designing the total rewards package must be familiar with the strategies of the

organization and the requisite KSAs to fulfill those objectives. Furthermore, they

must identify and understand the unique wants, needs, and desires of the people

they are trying to recruit. They need to know in detail what rewards would

attract, retain, and motivate those who possess the needed KSAs.

Other contemporary authors continue this review of the general view of total

rewards. For example, Richard Kantor and Tina Kao, in an article titled Total

Rewards: Clarity from the Confusion and Chaos (2004, p. 9) share the broad

definition of total rewards as rewards that "encompass everything that is

rewarding about working for a particular employer or everything employees get

as a result of their employment." In an article titled Retention Buzz, Jennifer J.

Salopek recognizes that employees are viewing employment from a "what's in it

for me?" perspective. It is no longer merely, "show me the money!" as was the

case in the popular Jerry Maguire movie, but show me everything and anything

that is going to satisfy ME!

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Manas and Graham (2003) also touch on the plethora of offerings approach

when they state that total rewards are analogous to offering 31 flavors in order

to satisfy all tastes! They explain that "the more broadly rewards are defined, the

more likely you are to touch upon what motivates the broad constituencies

represented by your employees" (p. 1). In this course, however, you will see how

we take the view that we cannot offer the "31 flavors," but will rather determine

what flavors are desired by the individuals with the requisite KSAs, and will offer

those flavors. Manas and Graham (2003) go on to define total rewards as

beginning with total remuneration, which includes all the elements of rewards

that can be valued in dollar terms; non‐cash rewards that are part of the

employment compact that they define as "an agreement or covenant … that

reflects the unwritten contract that exists between an employer and an

employee for the exchange of value" (p. 3). The non‐cash rewards that make up

the compact include affiliation, quality of work and life, training, and

development.

Ann Black (2007) touches on the value relationship of the rewards offered when

she shares that "the concept of total rewards goes beyond the traditional view of

benefits to include everything the employee perceives to be of value that results

from the employment relationship. These total rewards packages include not

only compensation and benefits but also work/life programs, employee

recognition programs, and developmental and career opportunities" (p. 33).

Mercer sums up the current thinking about total rewards and its significance for

the future well. The quote is from a white paper shared on Mercer's web site

(October, 2007, www.mercer.com). Mercer states that "the companies that

succeed in the future will be the ones that are able to attract, engage, and retain

the people they need in a way that is sustainable from a cost perspective." They

assert that organizations must develop "a total rewards strategy that

acknowledges a broader interpretation of rewards with differing appeal to

employees," including compensation (base pay, short‐ and long‐term incentives,

and recognition awards); benefits (health and other group benefits, retirement

plans, work‐life programs, and perquisites); and careers (performance

management, career pathing, training and development, talent review, and

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succession planning).

Before the focus of this module changes to how we evolved to the holistic and

comprehensive offering of total rewards, it is enlightening to look at what as

early as the 1970s, Ed Lawler, III, found to "suit the needs of a model for the

importance of pay" (1971. p. 25). Lawler stated that it was not pay that satisfied

the needs, but rather what the pay manifested; for example, variable pay might

allow an employee to be recognized before others (leading to positive self

esteem) or team incentives to allow a person more identification with a group.

The list of needs published by Abraham Maslow (1954) as a hierarchy of needs

was what Lawler used as his context and is still a model used today by many

organizations to help them identify rewards that satisfy all the needs of the

employees they seek.

Organizations are able to link their rewards to each level of Maslow's hierarchy

of needs described below. In an article written for WorldatWork, Kanter and Kao

(2004, p. 12) explain how each need can be satisfied by a reward offering.

Starting at the top of the hierarchy, for example, advancement/growth/

affirmation links to self‐actualization, interesting and challenging work to

aesthetic needs, learning and development to cognitive needs, recognition to

esteem needs, and affiliation and coworkers to belonging and love. Financial

security and health and welfare benefits are related to safety and security needs.

At the bottom of Maslow's hierarchy, hourly wage or base salary relates to

psychological needs.

Figure 1.2

Maslow's Hierarchy of Needs

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Topic 2: The Change to Total Rewards

According to Henderson, "in 1936, a steelworker received $4.32 per day" for a

hard day of work (2008, p. 30). This base rate of pay was with no time‐and‐

a‐half for overtime, no hospitalization insurance, no paid leave time, and no

pension. The philosophy at the time was to offer the least amount of money for

the skills needed and if the employees did not produce, there were plenty more

where they came from.

Today, organizations carefully craft their rewards philosophy to be competitive,

to stand out, and to hire the employees that possess the needed knowledge,

skills, and abilities to make their organization competitive and to achieve its

objectives. It is commonly recognized that "the outdated reward system that

recognizes basic pay and common benefits is not enough in today's approach for

attracting, retaining, and motivating the requisite talent needed for organizations

to succeed" (Kaplan, 2007). We know we are in a new era of compensation

management, but what has caused this dramatic change in rewards philosophy?

Like so many changes in business in general, and the human resources practice

specifically, four trends are leading factors for the move.

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Factors Influencing the Evolution to Total Rewards

Now that we have taken a brief look back at how rewards were once regarded,

we will look at the trends that moved the United States toward a total rewards

model. While we will not discuss all of the factors that influenced the change, we

are including some of the major ones that moved employers to move from mere

pay to attract, retain, and motivate employees. These factors influencing the

evolution to total rewards include demographic shifts, globalization, technology,

and competitive factors. Of course, there are other factors we are not

mentioning here, including increased governmental regulation, policies, and

programs, as well as the increase of union influence in employment practices.

1. Demographic shifts include "declining workforce growth, increasing age of

the workforce, changing gender balance, increasing ethic diversity, and

deteriorating family economic health" (Ulrich & Brockbank, 2005, p. 36).

These changes result in a diverse population, and where there is diversity

there are different needs, desires, and wants. What an organization offers

will attract some segments of the diverse population, but not others. For

example, older workers will likely prefer health care insurance and

retirement benefits, whereas younger workers will likely prefer alternative

work arrangements, training, and upward mobility. The need for

organizations to think strategically about population segments and how to

attract the segments with the needed KSAs is clear.

2. Globalization is another important factor driving the need for the shift to a

total rewards model. Not only is competition global today, but the labor

market is as well. When human resources professionals design their reward

offerings, it is no longer enough to offer rewards and practices traditional to

employees in the United States; they must consider the cultural differences

that will drive what is attractive and competitive to employees in other

countries as well.

3. Technology is "the application of knowledge to the transformation of things

into other things (and it) drives almost every aspect of the changing

business environment" (Ulrich & Brockbank, 2005, p. 22). Technology has

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made information and production move faster, improving efficiency,

increasing connectivity, and making customization possible. For our

discussion of total rewards, technology allows employees to be much more

informed not only about their own organization's offerings, but also the

offerings of global competitors. Technology makes it easy for someone to

apply for positions. Technology supports an organization's communication

plan about its rewards to both current and potential employees. Technology

has made it possible for organizations to give what many want, such as

alternative work arrangements. Technology is not only one of leading

factors driving the need for a total rewards model to compensation

management, but is also a key factor that allows the total rewards model to

be successful since the labor market is now global.

4. Competitive forces are present today and economic pressures see no

likelihood of diminishing, so costs are always examined closely. As

competition increases in the United States, companies realize that it is easy

to move production into other countries. Whether it is products they are

producing or services they are providing, there are workers in other

countries ready and able to take on the activities. One impact of the

increased competitive forces is that organizations must be prudent in their

total rewards budget; there is not room for offering rewards with no value in

recruiting, hiring, or motivating employees. There is no reason to waste

money on offerings that do not help the organization attract, retain, and

motivate the talent needed to achieve the organization's objectives.

Topic 3: The Critical Link of Strategic Objectives and Rewards

Loree Griffith, a principal at Mercer, is quoted in Salopek (2008) saying alignment

(of rewards to business objectives) is "making sure what you are doing on the

people side (of your business) is important to satisfying your business goals,

motivating and driving your employee population to do certain things." We know

that competition for employees is increasing because of the shifts in

demographics and competition is increasing due to global economic concerns,

therefore the money spent on rewards must lead toward the success of the

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organization or it is monies ill spent." Mercer (2006, p. 1) shares that "it's a

matter of focus. With finite resources to spend on compensation, organizations

need to invest these resources in a way that makes sense for the business and

drives future success."

Two organizations that use the total rewards approach to compensation

management successfully are depicted in the Company Spotlights below. We

feature Exxon Mobil and Google, both of which are on the 2007 Fortune 100

Best Places to Work, with Google being ranked first. Both companies

demonstrate how they have made the critical link of their organization's business

objectives and the rewards they offer in order to attract, retain, and motivate the

employees they need.

Company Spotlight: Google

In her article, Business Strategy, People Strategy and Total Rewards ‐

Connecting the Dots, Stacey Kaplan (2007) shares how Google takes a total

rewards approach and achieved Fortune magazine's top ranking on their list

of the best companies to work for in 2007. She describes the offerings to

Google's employees as an "incredible mix of quirky and traditional employee

perquisites … to drive productivity by attracting high achievers who are

willing to spend most of their time at work." The partial list includes

company‐paid gourmet meals, a 24‐hour gym, an in‐house doctor, and

concierge services such as dry cleaning and on‐site massages. Kaplan goes

on to state that Google's strategy makes the employees feel valued, which

helps with attracting and retaining the talent needed to achieve Google's

business strategy.

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Company Spotlight: Exxon Mobil

In his book, Employee Benefits: A Primer for Human Resource Professionals,

Joseph Martocchio (2008) shares how Exxon Mobil aligns its business

strategy, its human resource strategy, and its strategic benefits plans. See if

you can find the link in the following descriptions:

Business Strategy: The Exxon Mobil Corporation is committed to being the

world's premier petroleum and petrochemical company. To that end, we

must continuously achieve superior financial and operating results while

adhering to the highest standards of business conduct. These unwavering

expectations provide the foundation for our commitments to those with

whom we interact.

Human Resource Strategy: Exxon Mobil is a dynamic, exciting place to

work. We hire exceptional people, and every one of them is empowered to

think independently, to take initiative, and be innovative. Our employees

thrive on change, new technology, and synergistic partnerships both inside

and outside our company. And while the work is exciting and ever‐changing,

we know there's a time when work ends and life kicks in.

Strategic Benefits Plans: In return for your intelligence, ingenuity, and

passion, here are the rewards that await you at Exxon Mobil: outstanding

compensation, benefits, and employee programs, as well as a satisfying

balance between career pursuits and personal interests outside of work. We

also offer resources and support for ongoing development, growth, and

success.

The strategic imperative of the total rewards model is the focus on the business

objectives and linking rewards that target the population possessing the

requisite KSAs. How to design total rewards through this strategic process is the

subject of a later module.

Topic 4: Why is the Total Rewards Model Successful?

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Most of the employers on Fortune magazine's annual list of the best companies

to work for in the United States have designed total rewards strategies rich in

non‐monetary rewards, such as flexible working arrangements, developmental

opportunities, and fun office perks. By being included in the well‐publicized list

and by offering the total rewards they do, the organizations are afforded a

heightened visibility as a preferred employer, which assists them in recruiting,

retaining, and motivating the talented people they want. Kaplan (2007) states

that research shows that higher‐ rated employers tend to receive more

employment applications, thus making recruitment easier. Kaplan also states that

these higher ratings often translate into improved retention and enhanced

profitability, because engaging employees typically provide the best customer

service.

The case for organizations to design and implement a total rewards model is

evident. The total rewards model provides the strategies needed to address

diversity shifts, globalization, increased competition, and technological advances.

Total rewards provides for the needed change from the limited view of rewards

to the expanded view.

Total rewards help to manage costs and to ensure that money spent is used

effectively on the right offerings. Previously organizations would often respond

to retention issues with cash rather than including some of the non‐monetary

rewards that are less costly but valued by employees (such as flexible schedules).

Total rewards supports identifying and moving away from ineffective programs

to those that help drive the business forward.

The total rewards model assists organizations in addressing the diversity of the

population by first understanding the needs and then offering elements in the

work experience that fit the needs. For example, there is stronger emphasis on

job enrichment, flexible work schedules, and the overall work environment. A

total rewards approach better addresses many of these varying employee needs.

The most compelling reason the model works, however, is because the monetary

and non‐monetary offerings, which were once perhaps randomly decided, are

strategically determined to help the organization achieve its business goals in the

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total rewards model. Also beneficial to success is the marketing approach that

identifies what customers want. It is several elements together that make the

model the success that it is. As Kaplan (2007, p. 1) states in her article titled

"Business Strategy, People Strategy, and Total Rewards: Connecting the Dots,"

many executives are quick to introduce a new type of compensation or benefit

program because they've heard about it in the news or through a colleague.

However, this program may just be the latest plan du jour, not fitting within their

organization's strategic direction. It is important to identify and implement

programs that bring an organization further along its strategic plan.

There is no surprise in that the top employers on Fortune's Top 100 Best Places

to Work list use a total rewards model. They use it because it works to attract,

retain, and motivate the talent needed to allow them to hold a competitive

advantage. The two spotlight companies we looked at (Exxon Mobil and Google)

demonstrate this.

Topic 5: Conclusions

For purposes of this course, the definition of the total rewards model to

compensation management is: strategically planning a targeted reward package

to successfully attract, retain, and motivate segmented populations of employees </p

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