What Are Total Rewards in Human Resource Management

A study showed that employees tend to experience job satisfaction when they feel valued and receive fair compensation and benefits. When they are satisfied with their job, they excel at work and contribute positively to the company.

Organizational success requires effective compensation and benefits. Also, adopting a comprehensive approach called total rewards, which includes non-monetary aspects like career development and a positive work environment, further enhances employee satisfaction and long-term success.

But what exactly are total rewards? This article covers everything about total rewards in human resource management, from components and importance to examples and FAQs.

What are total rewards in human resource management

Total rewards in human resource management can make a significant difference in the workplace when correctly implemented, which contributes to increased employee satisfaction, engagement, and overall organizational performance. To fully understand it, let's discuss its definition, components, and purpose.

Total rewards in human resource management definition

Total rewards in human resource management refer to the combined value of all the financial and non-financial rewards employees receive in exchange for their work. The concept of total rewards in HR goes beyond just base salary to encompass a broader picture of how an organization invests in its employees' well-being and motivates them to perform their best.

The history of total rewards in human resource management began in 1990 with the original model. It included components such as:

• Compensation (base and merit pay, incentives, promotions, and pay increases)

• Benefits (health, income stability, paid time off, and retirement)

• Personal growth opportunities (training, career development, and performance management).

Over the years, various companies have refined the model by incorporating additional elements like work-life effectiveness, recognition, and performance management

Moreover, total rewards programs evaluate various factors to incentivize and motivate employees, including:

• Work quality. Employees are rewarded for consistently delivering high-quality work, showcasing innovation, and positively impacting organizational objectives.

• Job attitude. Recognition and rewards are given to employees with a positive attitude, unwavering dedication, and alignment with organizational values.

• Work hours. Acknowledgment is provided for the time and effort employees invest, which may include overtime pay, flexible arrangements, or recognition for consistently exceeding standard work hours.

• Productivity and revenue generation. Rewards are tied to productivity and revenue through performance-based compensation structures like bonuses, commissions, or profit-sharing.

Importance of total rewards

The main goal of total rewards in human resource management is to attract, motivate, and retain top talent within an organization by providing a comprehensive and competitive compensation package. In addition to these core purposes, total rewards programs offer additional benefits, such as:

Enhance company image and culture

A thoughtful total rewards package signals a commitment to employee well-being, making the company attractive to top candidates. It also promotes a positive workplace culture by valuing employees as individuals.

Improve work engagement and productivity

Happy and supported workers are usually more involved and productive. Total rewards in HR can create a sense of ownership and commitment to the company's success, which leads to increased effort and better results.

Cut turnover costs

Keeping current employees is usually more cost-effective than bringing in and training new ones. Providing a competitive total rewards package helps minimize turnover costs and keeps a steady, experienced workforce.

Improve employee health

Providing benefits such as health insurance, wellness programs, and flexible work arrangements supports employees' well-being. This can result in less absenteeism, higher morale, and a more positive workplace.

Link employee rewards to company goals

A carefully planned total rewards program can be tailored to encourage behaviors and accomplishments that match your company's objectives. For instance, giving bonuses for surpassing sales targets or offering training opportunities for promising employees can help you reach strategic goals.

Total reward examples

The components of total rewards in human resource management depend on the organization, but here are some common examples of elements typically included in a total rewards package.

Financial rewards

• Base salary: Fixed pay for work, usually given every two weeks or monthly.

• Bonuses: Rewards for surpassing goals or meeting specific objectives, often tied to performance.

• Commissions: Earnings linked to sales or performance metrics, common in sales positions.

• Profit sharing: Distributing a share of company profits to employees based on established criteria.

• Stock options: Granting the right to buy company stock at a set price, potentially leading to long-term gains.

Benefits and wellbeing

• Health insurance: Covers medical costs for employees and their dependents.

• Dental and vision insurance: Covers dental and vision-related healthcare needs.

• Retirement savings plans: Employer-backed plans to help employees save.

• Paid time off (PTO): Includes vacation time, sick leave, and other paid breaks from work.

• Family-friendly policies: Support for family responsibilities, including parental leave and childcare assistance.

• Wellness programs: Promotes employee health through initiatives like gym memberships, fitness challenges, and health screenings.

Work-life balance and flexibility

• Remote work options: Letting employees work from home or other locations.

• Flexible work schedules: Providing options for flexible start and end times or compressed workweeks.

• Employee assistance programs (EAPs): Confidential counseling and support services for personal and work-related issues.

Recognition and development

• Performance recognition programs: Publicly praising and rewarding employee accomplishments.

• Training and development opportunities: Offering chances for employees to learn new skills and progress in their careers.

• Mentorship programs: Pairing experienced employees with newer ones for guidance and support.

• Career development paths: Clearly outlining routes for advancing in one's career within the organization.

• Performance feedback: Providing regular evaluations and feedback to help employees recognize their strengths and areas for improvement.

Note: Organizations include these components as part of their total rewards strategy and often provide a total rewards statement for their employees.

FAQs

Below are commonly asked HR questions related to total rewards in human resource management and their corresponding answers.

How are total rewards different from salary

Total rewards in HR differ from salary because they aren't just about the paycheck but include all the financial and non-financial benefits received from the job, such as health insurance, paid time off, and development opportunities.

Why are total rewards important to employees?

Total rewards in human resource management are important to employees because they go beyond the paycheck, providing financial security (health insurance, retirement plans) and well-being perks (paid time off, flexible work arrangements). This demonstrates appreciation and investment in their lives.

What is the difference between total rewards and total compensation

The difference between total rewards in HR and total compensation is that the former includes both monetary and non-monetary benefits, whereas the latter focuses solely on the compensation an employee receives in the workplace.

How is performance linked to total rewards in HR?

As mentioned, one of the factors or criteria for employees to receive total rewards is work quality or performance. Strong performance can unlock higher rewards, such as bonuses, promotions, or recognition, increasing motivation and engagement, which, in turn, fuels further performance.