Total reward: a complete guide

Published: 19 June 2024 | by Natasha K. A. Wiebusch, Brightmine Marketing Content Manager

According to the latest Brightmine survey analysis, Reward planning 2024: priorities and key challenges, affordability and employee expectations are the top challenges for employee reward planning.

In a time of economic uncertainty, a tight labour market and increased employee mobility, employers understand just how important total reward is.

HR leaders need to continue to prioritise competitive reward to attract and retain top talent. And what’s competitive today goes well beyond base pay and bonuses.

Learn everything you need to know about total reward in this complete guide.

What is total reward?

Total reward is everything an employer offers employees in exchange for their services. It includes the total base pay, incentives and employee benefits. It also includes non-monetary benefits that cannot easily be quantified.

You’ll often hear total reward referred to as a total reward package. This term reflects the combination of cash compensation and other workplace benefits and perks.

Types of reward

What employers include in a total reward package depends on each employer and what benefits the employee selects. Generally, however, it includes pay, employee benefits and intangible rewards:

Pay is compensation in the form of money. The following are common examples of pay:

Employee benefits have monetary value, but they are not paid directly to the employee in cash. This includes:

Intangible rewards are rewards that cannot be easily measured in dollars. Examples include:

Intangible rewards are becoming increasingly important to total reward strategies. According to the People at Work 2024 report, flexible work and career development are leading priorities for today’s employees. For this reason, competitive employers are now including these rewards in their job advertisements and total reward statements.

The difference between total total reward and employee benefits

Today, total reward is an umbrella term that encompasses pay, employee benefits and everything else an employer offers employees in exchange for their work.

Employee benefits, on the other hand, are indirect forms of reward offered to employees. Common types of employee benefits include private medical insurance, long-term disability insurance and annual leave.

Employee benefits are extremely important to a total reward strategy because they can help employers differentiate themselves from competitors. They improve the employee experience by supporting work-life balance and wellbeing, and they communicate the organisation’s values.

Benefits can also help employers create a competitive total reward package when they can’t offer the highest base pay. For example, an employer can take advantage of tax-efficient benefits to improve its offering while not increasing owed taxes.

Calculating total reward

To calculate total reward, add an employee’s total pay and employee benefits. In other words, total reward is the sum of the base pay, any variable pay and employee benefits. Because employees can pick and choose certain benefits, their total reward will often vary.

When calculating total reward, it’s important to determine whether you’re calculating the total cost or the total value.

The total cost of an organisation’s reward is the cost an employer incurs to provide the reward to their employees. You can calculate the average total cost per employee or the total cost for an individual employee.

The total value of a total reward plan, on the other hand, represents the total value to the employee. This is usually higher than the total cost, as companies can often obtain better rates on benefits than employees could as individuals. For example, you may offer employees a free subscription that costs the company £8 per month but is worth £15 per month.

Total reward statement

A total reward statement is an itemized list of the employee’s total reward package. It generally includes all forms of pay and employee benefits. Today, it’s becoming increasingly popular to list intangible rewards to show the true value of the the reward package.

Employees usually receive a total reward statement with their job offer and then once a year moving forward. Reward statements are key because they help employees understand the total value of their offer, not just their base pay and bonus structure. Employers may also call total reward statements total compensation statements.

HR’s role in total reward

HR business partners, benefits leaders and CHROs are all intimately involved in evaluating total reward, as each has a role to play in building the reward strategy.

A total reward strategy greatly impacts employee engagement and efforts to attract and retain top talent. Accordingly, people leaders are responsible for ensuring compensation is competitive and fair through precise benchmarking and research. HR leaders are also responsible for constructing and gaining buy-in for the reward strategy.

Labour costs also usually make up the majority of total business costs. Accordingly, CHROs, have a responsibility to ensure the strategy is within budget and aligns with the business strategy.

HR also has the primary responsibility of marketing the total reward package to candidates and employees. In fact, in recent years, HR leaders have had somewhat of a benefits communications renaissance. That is, they have responded to historically low benefits use rates by revamping their communications.

Now, aside from onboarding and open enrollment communications, HR is issuing targeted communications throughout the year. And with the help of AI, HR can personalise benefits communications and apply marketing principles to nurture benefits uptake.

In addition to leading benefits communications, HR is responsible for gathering and elevating employee voice. Obtaining employee feedback helps the organisation shape the total reward plan and gauge performance. It can also support benefits communication efforts so that employees understand the true value of their reward package.

Ensuring competitive total reward

Competitive total reward packages will give you the edge in the talent market. To determine what’s competitive and within reach for your organisation, consider the following recommendations:

Make data your top priority

Market research — particularly salary benchmarking — is paramount to a competitive total reward strategy. It helps you understand how competitive your pay is in market and supports pay equity.

Be sure to stay updated on industry trends in your specific industry and continue to benchmark compensation and benefits. In addition to conducting formal benchmarking exercises, consider evaluating what your competitor’s career websites and social media say about their compensation.

Be human-centric

In today’s world of work, human-centricity is key to attracting and retaining top talent. Leverage any information you have about your employees to understand their personal needs and career aspirations. The more information you have about your employees, the more you can tailor the reward package to fit those needs.

To get the right insights, consider AI-powered platforms that can provide hyper-personalised employee insights.

Maximise tax-efficient and non-monetary benefits

No matter your budget, you can only spend so much on employee pay. And in uncertain economic times, bloating pay can lead to budget problems down the road. Tax-efficient benefits will provide employees with needed benefits while not increasing your tax exposure. And, non-monetary benefits can improve the employee experience in a budget-friendly way.

Review your total reward strategy often

Compensation and benefit trends will inevitably change over time, as will the organisation. To help ensure your total reward strategy continues to be competitive, review your reward offering often. At a minimum, continue to benchmark your compensation and benefits, and obtain employee feedback.

Conclusion

Designing and implementing a competitive total reward package is crucial to attracting and retaining top talent in today’s competitive job market. By prioritising data and human-centricity, companies can create competitive and sustainable strategies while meeting the unique needs of the workforce.

Want to ensure your total reward is competitive? Consider the Brightmine suite of data-backed HR solutions.