Total rewards are the ultimate driving force in today’s workplace by ultimately serving as the motivation for employees to perform. Finding the perfect balance between allocating shareholder profits to serve as a monetary reward for bottom level employees is something that every Human Resource department and office executives are trying to balance in order to maintain happy employees and satisfied shareholders. This posting analyzes company research pertaining to total rewards packaging and the implementation of a pay for performance approach in the workplace.
A key element for a successful pay-for-performance approach requires the implementation of a total reward strategy. “A total reward strategy should include base salary, variable pay (short-term incentives and long-term incentives), other compensation, perquisites, benefits, and performance management” (Ben-Ora & Lyons, 2002, p. 34). What this encompasses is that for the implementation of a total rewards strategy to exist, a company needs to take a holistic look within the company’s framework and be sure to cover all aspects of rewards, especially those pertaining to employee performance.
To understand the meaning of total rewards, we must first start from the basics of human resource management. Organizations and companies across the country are experiencing a disconnect between employees, managers, and shareholders when it is tied to profit disbursement. Understandably, employees (those doing the majority of the labor) want to receive financial compensation and perquisites from upper level management while shareholders (those taking the financial risk) want to keep monetary gains to themselves. Studies have shown however, that the sharing of these profit margins from a total rewards aspect to employees increase the overall financial growth of a company based on a three year and five year study (Ben-Ora & Lyons, 2002). “We correlated the three and five-year financial performance of several publicly traded companies offering variable pay programs (approximately 100) against several variable pay plan design parameters. Our research showed that those that provided a variable pay plan using measures tied to specific individual employee performance showed a better overall financial performance and rate of return over both a three and five year period” (Ben-Ora & Lyons, 2002, p. 34). So if the companies are seeking financial gain, why are total rewards still a gray area in the workplace?
The major issues of total rewards within an organization start with the basic foundation of a strategy and a pay for performance structure. An organization must look at the big picture and answer the following self questions: “can your organization define and effectively communicate key individual measures to all eligible employees, can your organization embody a pay-for-performance philosophy, what is your desired competitive pay position, and what is your employee population make-up” (Ben-Ora & Lyons, 2002, p. 36). Answering the aforementioned questions will allow an organization to understand the total rewards strategy within their framework and identify the best practices for rewarding their employees.
As we can see, total rewards play a large role in the overall financial success of a company. In order for a company to thoroughly reap the benefits of increasing total rewards to its employees in an effort to maximize the overall financial growth, the company must evaluate its structured framework. From there, the managers and shareholders can capitalize on its management to employee relationship. As critics will call it impossible, utilizing total rewards to a company’s advantage just might make everyone happy.
References:
Ben-Ora, D. & Lyons, F. (2002). Total Rewards Strategy: The Best Foundation of Pay for Performance. Compensation & Benefits Review, 34, 34-40.
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