Introduction to Total Rewards

To attract and retain high-quality talent, companies design reward packages that appeal to many different people. Companies do this by addressing pay and benefits with a total rewards approach.

Total rewards are the monetary and nonmonetary rewards provided by companies to attract, motivate, and retain employees. Determining which rewards are valued by employees and applicants and finding affordable ways to provide those rewards can be challenging. Total reward programs should be evaluated on an ongoing basis to ensure that employees find them satisfying and that they are cost-effective and sustainable for the organization. The organizational culture and pay policy should be complementary and consistent.

The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, and child labor standards affecting full-time and part-time workers in the private sector and in Federal, State, and local governments. State laws also vary on many of these topics, and employers should research compliance requirements in all states in which they operate.

A compensation philosophy is simply a formal statement documenting the company’s position about employee compensation. It essentially explains the “why” behind employee pay and creates a framework for consistency. Employers can benefit from being transparent about their compensation philosophy and having an official pay strategy.

Few organizations follow an exclusively performance-oriented compensation philosophy, but the overall trend is toward greater use of pay-for-performance systems. Monitoring changes in employee behavior may help uncover perceptions of inequity.

Organizations face the challenge of whether to adopt practices common in an industry or to differentiate the firm by using novel or distinct compensation practices. They also face the challenge of keeping their compensation levels competitive given what other firms are paying their employees, an issue that comes to the forefront when companies try to hire workers away from their current employers.

When establishing a pay structure, organizations use pay grades, which are groupings of individual jobs that have approximately the same value to the organization. Pay for Performance uses pay that varies with some measure of individual or organizational performance, such as merit, incentives, and variable pay.

Continued monitoring of organizational pay levels and properly managing women’s career progress are ways to address these concerns.