Total Reward Approach to Reward Management

Every human being relationship blooms in the light of reward. As the world is going through a serious phase of recession, the amount which is paid to the employees and the form of payment done is therefore the issue that matters. The importance of Rewards is increasing in the world of commercial organisation and is definitely one of the major indicators of profitability and competitive advantages.

One of the biggest determinants of rewards lies in the financial position of a particular organisation. The organisations are in constant pressure of producing reward schemes which accumulate all the factors from attraction to motivation of their employees, simultaneously while maintaining the viability of the company’s financial and commercial scenario. Absence of reward schemes may have a devastating effect on the organisations performance.

The concept of Total Reward has been evolving ever since, Management today is trying to widen up the meaning of the word ‘Reward’ including both tangible and intangible aspects of rewarding their employees, (Armstrong and Brown,1999). On one side the tangible rewards ensure financial stability of the employee while on the other side the intangible rewards looks after the employees luxuries and compensates for future loss. Now a day’s managers and scholars are using Total Reward Management more and more as the modern management method

According to the Human resources management Total Reward strategy needs to b examined and experienced often to obtain perfect and efficient results. This strategy guarantees a remarkable profit for the organization improving the staff’s performance as well as contains the potential to solve and compensate the existing issues in the organization. Rewarding employees in any organization can affect attitudes, behaviour and motivation. Influence on the behaviour of workers seems to be particularly important, it will tend to extra effort if an employee knows that his achievements, work, creativity etc. will be measured, evaluated and rewarded accordingly. The increasing efforts of the employees will result into the company’s increasing profitability and better customer service. It must mobilize the growing individual and collaborative involvement of all employees.

Literature review:

Today organizations are looking forward to increase their employee’s efforts by encouraging them to improve their performance beyond the organisations expectations and reducing labour cost to a minimum. Thus the study of employee motivation has constantly remained a managerial concern. This essay considers some of the main views of the organisations adopting a total reward approach to reward management. While answering such questions as what do you mean by total reward? How it is benefits the employees as well as the company? How does it motivate the employees? How is it monetarily profitable for the company? Etc.

“Reward management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organisation. It deals with the design, implementation and maintenance of reward processes and practices that are geared to the improvement of organizational, team and individual performance” (Armstrong and Murlis 2006). If the organisation has a fairly distributed reward management then it not only progresses the company but also enhances employee’s skills and performance. Hence the organisation is under tremendous pressure of having a non bias reward distribution so as to avoid any chaos within the organisation.

“The reward management literature emphasizes the need to shift from short-term, ad hoc approaches to pay management to a longer-term, strategic approach. Changes in pay and benefits systems have therefore been prescribed as key HRM objectives, pulled together in the US literature under the rubric of the “new pay”” (Lawler, 1995)

It is therefore a major managerial concern about how they approach to the concept of total reward. Each organisation can have different criteria about elements that constitute total rewards.

Paul Thompson (2001), further gives an elaborated definition of total reward by emphasises it not only encompasses rational scientific elements like wages, changeable pay and profits, but also more intangible non money related elements such as scope to attain and implement responsibility, career opportunity, education and development, the inherent motivation delivered by the work itself and the quality of working life provided by the organization.

Essentially, the notion of total reward says that there is more to rewarding people than throwing money at them. Planning a long term reward holds the employee and motivates them to enhance their performance for better customer satisfaction. As Murlis and Watson (2001) refer to the importance of monetary values in designing a reward package but also about these not being the sole factors. She describes cash as being a weak tactic in the overall reward strategy and stresses that total reward policy should be based on building a much better understanding of what the employees expect in their rewards packages. Relationship between the organisation and the employees can be strengthened with the total reward approach.

Therefore we need to see a very integrated and holistic approach while considering all aspects of rewards (Armstrong and Murlis, 2006)

Hence it is essential to have a coherent reward strategy which “helps to create a work experience that meets the needs of employees and encourages them to contribute extra effort, by developing a deal that addresses a broad range of issues and by spending reward dollars where they will be most effective in addressing workers’ shifting values.’ O’Neal (1998).

CIPD reward faculty members Wright and Murlis have created a significant diagram to present visually the various types of total reward. Its definition incorporates a wide range of approach but it is not the only solution for employee energetic. The idea of reward exchange is emphasized although quite frequently left out in the area at work definition. In combination unique and common motivation methods are provided to employees in exchange accordingly for their effort, results, work time, creativity, talent etc. There are five main key elements to keep secure and retain talented workers and also to motivate them optimally to accomplish possibly best business results (Davis, 2007:4).

The key points stated by CIPD (2005) in the world at works total rewards: Compensation, Benefits, Work life, Performance, Development and career opportunities.

Manas and Graham (2003) emphasize that developing and implementing a total reward approach has much in common with reward strategy development. According to Purcell (2004) and colleagues ‘the organisation can contribute by communicating the values, giving employees a voice, setting up improved performance management processes, instituting formal recognition schemes and taking steps to improve work/life balance’. Decisions such as giving voice to the employees by an organisation leads to the delegation of some powers to them regarding their respective expectation about rewards which helps the management in developing appropriate strategies.

Developing and implementing a total reward approach may be difficult but the benefits are considerable. The employment relationship created by a total reward approach, which makes the maximum use of relational as well as transactional rewards, will appeal more to and engage individuals involving people in their own reward package design, dives them strong messages about the organisation and its values. At its best, it builds relationship capital.

Pfeffer (1998) implicated a new idea to total reward approach in a powerful manner, Employees are able to use their skills in an effective and efficient way with interest and motivation in an enjoyable, challenging and empowered work environment, for which they should be shown appropriate appreciation by the organisation. This scenario creates such an environment for the employees, by which they got motivated and enhance their performance thereby proving beneficial for the company, but it would be less time consuming and simple to reward the employees monetarily then to plan and arrange intangible rewards.

Case Study:

Total Reward Statement as a document is created annually for every working member of the company on a regular basis. This document allows the employees to receive all the details regarding their benefits that have been received over the course of the year. As total rewards deals with tangible and non-tangible benefits it informs the employees about the salary drawn by them as well as a breakdown of all the other non-tangible profits that have been taken in exchange for their employment.

Presenting the reward to the employee in cash terms proves to be very beneficial for the company as well as the employee. For example: if an employee has received shares. The reward statement shows the value of the shares and might as well show their trading history since the issue of the previous statement.

There are many companies which have been adopting total reward strategies in the last few years and gaining benefits and improving their labour power. This paper shows a few companies dealing in different products and implementing total reward strategy.

Beginning with one of Europe’s leading telecommunication services “BT COMMUNICATIONS”. The new reward framework is one of the biggest change initiatives in BT’s history, covering more than 40,000 employees in total.(e-reward.co.uk research report, no. 35, July 2005). The idea of transforming its reward strategy from fairly traditional multi-grade pay structure to a total reward system was BT’s essential Organizational Program.”One area of focus in the new strategic HR agenda was to look at reward and address BT’s Paternalistic approach to reward” Says Kevin Brandy, HR Director Reward. (e-reward.co.uk, no. 35, July 2005).

As the management of BT states, the alleged reasons for switching from the previous reward arrangement was to develop the changed view of the BT people’s regarding rewards. The organisation wasted Millions of pound annually on rewards because of the limitations of the employees in view of company’s bonuses. Taking into consideration, the limitation of the earlier adopted reward strategy bounded employees to appreciate their benefits as well as lack understanding and awareness capabilities.

By implicating the new reward framework BT affect 250-plus market based roles in 18 job families. BT’s strategy is basically based on the role and performance of the employees. As on the other hand, benefits and bonuses given are based on the external market. Giving total reward an broader offer BT has tried to renovate the reward strategy, by going beyond the standard remuneration of the base pay including bonuses.

For BT, total reward is not just an ordinary reward strategy used for paying wages to the employees. It’s about bonus and benefits, such as company cars and health insurance, shares and pensions, role-based reward, performance-based pay and choice and flexibility in benefits provision. Henceforth three main elements of the reward package influence BT’s new total reward approach: Base Salary, Bonus, Benefits (Armstrong and Thompson, 1999).

“STARBUCKS” being one of the world’s largest speciality coffee retailer having 1300 store worldwide, hire around 200 people per day and grow US revenues by 25 to 30 percent on top of US$4.1 billion in revenues from the previous fiscal year. According to Chet Kuchinad, SVP of Total Pay “We build the Starbucks experience by delivering pay elements to our partners that drive financial rewards in the success of the company in a meaningful way.”

In order to strengthen and constrain the culture of Starbucks, innovative reward strategy and payment programs have been introduced. “Full- and part-time partners (who meet eligibility criteria) are offered health, dental, and vision insurance, as well as access to an employee assistance program (EAP), reimbursement accounts, short- and long-term disability, and Working Solutions, Inc. (a resource and referral service) to help manage work and family issues” (Wilson group.com, case study on Starbucks).The employees receiving the rewards greatly appreciate and value the reward and, as a result, provide a better a service to the customers.

According to Starbucks, total reward has played a very important role in benefitting the company but there are many other factors in human resources which affect the company’s stability. Examples include employee education, an open n highly communicative environment and a unique program adopted by Starbucks called Mission Review, which is a part of a broader program called Partner Snapshot. Partner Snapshot deals with gaining feedback from the company’s partners. However the functions of human resources in Starbucks continue. Rewards and profits were considered by the introduction of total reward that included additional health benefits, maturation of healthcare delivery, and coverage for same sex partners, and an employee assistance program.

“However, pay alone will not attract people. Our Total Pay philosophy and our culture of teamwork and community are all key parts of why people join and stay with Starbucks.” (Starbucks)

The next case study deals with Audit, Consulting, Financial advisory, Risk management and Tax services. “DELOITTE” also known as Deloitte Touche Tohmatsu Limited (DDTL), is a UK private company limited by guarantee. Mark Carman, sales and marketing director of Motivano, Deloitte says “Total reward can b a win-win from the perspective of en employee as the reassurance and support available from knowing exactly what your salary and benefits package is worth can have a huge impact on their performance, engagement and motivation. With the rising value of rewards and benefits the company proprietor are using total reward to improve and support their affiliation with employees.

Deloitte explains five main steps in creating effective total reward communication:

1. Create clear and concise messages.
2. Think about brand and design.
3. Check the accuracy of your data.
4. Consider security of your personal information.
5. Work with other internal experts.

“BRISTOL-MYERS SQUIBB” is a US-owned pharmaceuticals company. Bristol-Mayers Squibb was going through a mystification of employees regarding reward strategies. As compared to the external competitive market the company was not able to reward the employees, employees were lacking the understanding of the reward which they received and there was an awareness that the wages and the benefits given to them were not as fine as the competitive market offered. Transformation to a flexible reward strategy was very necessary for Bristol-Mayers Squibb which supports the recruitment and maintenance, bringing all the strategies together Bristol introduced the total reward strategy.

Portraying everything as work experience, Bristol-Mayers Squibb kept the usual peculiarity between rewards and remuneration. As a result the company received employees which consists appreciation, work-life balance, civilization, employee development and the working environment

“HENNES & MAURITZ (H&M)” is a 100 billion SEK company, Engaged in designing and retailing of fashion apparel and accessories. Hennes & Mauritz appears to provide a total reward framework, with greater emphasis on relational rewards even though transactional rewards are provided (Armstrong (2006), pp.639-631). Hennes & Mauritz reward strategy includes many other human resources area like organizational traditions, conscription or selection etc. Implementing total reward management was a very successful concept in the history of Hennes & Mauritz. The increasing sales are the evidence of the profitability of H&M business as the employees are motivated with job satisfaction as a reward and perform their job as well as contribute their best to ensure customer satisfaction.

This case study acknowledges about the companies adopting total rewards from a long period of time and improving their business skills. Though there are some disadvantages to this approach. Starting with the employees, they find it very difficult to understand and expensive to set up as well as complicated to maintain. Although the advanced technology is helping organization to reduce burden as well as reduce cost. The vast range of choices may create a problem both to the company and the workers. There might also be wastage as the employees may not appreciate the full reward package.

Conclusion:

The reward approach not only takes care of the financial security of the employees but also looks after the overall development of their employees in the society. It’s a delicate matter that should be perfectly balanced especially when the organization is rewarding different people working in one team. The advantages of total reward approach are substantial, but developing and putting it into practice may be a difficult task, by the use of relational and transactional rewards the employment relationships created by total rewards approach can be maximised. The total reward approach creates a strong communication about the organisation and its values by satisfying the employees and engaging them in their own designed reward package. At its best, it builds relationship capital.