We spend a considerable amount of our time at work. What keeps us engaged, motivated and productive is so much more than just a paycheck at the end of the month. Increasingly, businesses are realising that a salary is not the only way of rewarding employees. To attract and retain the best talent, companies need total reward policies and practices.Total reward strategies are one of the best ways of recognising and valuing employees as individuals. In this guide we’ll look at how businesses of all sizes can approach and implement a successful total reward policy.
Back in 2017, Gallup released a blog titled ‘The World's Broken Workplace’. It was a result of a global survey the company conducted, revealing that only 15% of the world's one billion full-time workers are engaged at work. This indicates that a huge majority of employees aren’t focused or productive at work. The survey covered 160 countries, some with better results than others. The US had an engagement rate of around 30%, whereas a staggering 94% of Japanese workers were not engaged at work.
Jim Clifton, Chairman & Chief Executive Officer at Gallup, concluded that workplaces around the world were failing to build a working environment that allows people to enjoy and thrive at work. In fact, he felt like it meant human development was failing too. When people come to work with great enthusiasm, they shouldn’t be met with bad management practices, poor workplace culture and needless processes that “[grind] the life out of them.”
The picture Gallup painted wasn’t a pretty one. It urged for a widespread transformation of workplace cultures.
But some would say this was already happening, albeit not on a large enough scale to impact employees everywhere. The idea of improving the culture of workplaces, keeping existing employees satisfied and attracting the best new talent has been around for some time.
Timelines tracing the history of work suggest that by the 80s, people started talking about a couple of things:
A global survey revealed that only 15% of the world's one billion full-time workers are engaged at work
By the 90s, we really started to see employees placing their own needs and interests above those of their employers. They were doubting the value of long-term company loyalty and expecting more from companies. Businesses which didn’t consider quality-of-life factors for employees, or prioritised “competitiveness-enhancing, productivity-improving schemes” started to see people leave for friendlier workplaces.
The way we understand employee productivity and engagement has totally transformed. People don’t need to be stuffed into a cubicle, forced to wear a suit and watched over in order to prove they’re working. Employees can truly thrive when given the opportunity to work in a way that suits them. After all, people are the most valuable asset to any company.
The coronavirus pandemic proved that, even under the most challenging circumstances, people can successfully work from home. It has created an otherwise unlikely shift away from old-fashioned ideas that productivity can be judged by the number of people at desks in an office.
Of course, we’re yet to fully understand how people will work after the pandemic. Some may continue to work from home, some may return to offices. There are a lot of unknowns. But one thing is certain: a lot of people would like to continue working from home some of the time (57% of workers, according to YouGov). Working from home is no longer seen as a privilege for the few.
But where people work is just one piece of the puzzle. Traditionally, a salary was the only way of rewarding employees and it was not common to offer other incentives outside of this.
Nowadays, people are looking for much more than just a salary from their employers. To remain competitive as a company, to attract and retain the best staff, and to truly recognise and value employees as people, businesses need reward policies and practices.
But how do employers decide what to offer? What truly offers the most to employees? And what keeps staff the happiest?
If you’re asking yourself what you should be offering to attract and retain employees, you’re already on the right track. This question is more relevant than ever right now, especially with all the uncertainty in the world. Many of us have been working at home as a result of the coronavirus pandemic – although stay at home restrictions have lifted, some workplaces continue to offer some kind of flexible working arrangement. But as we learnt while working from home, professional and personal lives can be blurred, causing worries around increased stress and burnout.
In their efforts to manage employee happiness, amongst other challenges, business owners and managers are restructuring total reward to meet the demands of the new working world.
By the 90s, we really started to see employees placing their own needs and interests above those of their employers.
There are several factors which influence the type of experience employees have at work. For most of us, having a job is much more than just a paycheck at the end of the month. CIPD cite WorldatWork, a US organisation which promotes the role of human resources, which identified six components of work experience:
Businesses often focus on these in isolation, thinking that one may be more important or bring more benefit than another. A total reward approach looks at all of these aspects together, considering financial and non-financial rewards in equal measure.
It brings together all the investments a business may make into its workforce, considers what people value, and works towards a strategy to attract, motivate, retain and engage employees. A total reward strategy exists to keep staff happy and, in turn, return investment to the business, such as increased performance or improved results.
When we talk about total reward, think of it as a tool kit, with which your organisation can use in its own way to offer employees a truly valuable working experience. After all, what works in one organisation may not work elsewhere. Although there are plenty of common elements, total reward is a value proposition that will vary between organisations.
For example, offering working from home opportunities may work for an online company but not for a production business. Performance-based bonuses may incentivise some workforces, but negatively impact the organisational culture elsewhere. Since we’re talking about a strategy which is meant to reward employees, it’s important that it’s created with your own workforce in mind.
It brings together all the investments a business may make into its workforce, considers what people value, and works towards a strategy to attract, motivate, retain and engage employees.
The focus on total reward strategies is an indication of changes in the way recognition programmes are incorporated into businesses. What was once just considered an add-on, perhaps even an afterthought when performance was lacking, is now considered holistically in progressive organisations. According to Deloitte, these organisations are:
Centralising initiatives and ensuring alignment with business goals, culture and talent management processes. They design their programmes to consistently reinforce key behaviours and outcomes necessary to drive business success, and they measure the impact of those programmes.
But where does an organisation start when considering designing their own total reward programme? There are some key initial steps:
Establish a team responsible for recognition and reward
Identify behaviours and values you want to recognise and encourage within the team
Where goals are used for reward, make sure they are attainable for all employees
Make it a workplace habit to acknowledge employees
Tailor your total reward strategy to your company and employees
There are key elements of any reward programme for the team to consider.
What was once just considered an add-on, perhaps even an afterthought when performance was lacking, is now considered holistically in progressive organisations.
The fixed element of total reward is salary. It’s a topic which can be uncomfortable for people at all levels within a business. It brings up practical and emotional challenges with plenty of different opinions. It seems to be particularly problematic in startups with busy founders trying to juggle different priorities. As The People Collective put it, this can result in “a compensation plan which has become a patchwork quilt of your nightmares, built from sleepless nights, quick decisions, ego, wants, needs, and more.” So how can you pay people in a way that aligns with a total reward approach to attract, motivate, retain and engage employees?
One essential is a clear process which drives decisions on new hires, promotions, and recruitment planning – one that you’re happy and proud to share with employees, confident that’ll make it easy to understand why people are paid what they are in the way they are. According to The People Collective, the questions you should be answering include:
Stay by your choices and communicate them clearly to the team. If you don’t, everyone starts to build their own perception of what is fair. You should also be consistent – without exceptions. For example, if you decide to review salaries twice a year, you cannot then take ad hoc requests from certain members of the team. You undermine the company’s processes for pay reviews.
Another aspect of salaries is benchmarking. To know if you’re paying well, you need understanding of the market value of your team. You need to look at what other companies are paying within your industry, in different locations, and for varying levels of experience. You can use resources like Payscale or Glassdoor, but accuracy can vary. The traditional idea is that you can map out where your salaries sit in terms of percentiles within the marketplace.
Another decision to be made is whether you want to pay bonuses. A bonus is a type of variable pay which is earnt based on meeting certain criteria – it could be meeting or beating targets, bringing in new clients or referring potential employees or other behaviours. Bonuses are particularly important in sales positions where commission is relied on to drive results.
Molly Graham, now Head of Business Operations at Quip, helped create Facebook’s compensation and performance system. She spoke to First Round Review about how she emerged on the other side realising “how valuable a solid, standardised compensation system can be.”
Her first golden rule might surprise you: no one is ever happy with compensation, and compensation has never made anyone happy. What people are paid isn’t the thing that’ll make employees join or stay for the long term. It’s much better that the people who join buy into the people, the company vision, the work and so on. Those people will stay longer.
The goal? For her, it’s to move the focus away from compensation by making sure employees can live off their salary, have a fair slice of equity and only think about salary maybe once a year. To do that, you need to be fair and transparent.
One essential is a clear process which drives decisions on new hires, promotions, and recruitment planning – one that you’re happy and proud to share with employees.
Graham mentioned equity. Equity is the value of stock shares in a company – they represent that amount that is attributed to the company’s shareholders. In other words, if you offer employees equity, you are offering them the opportunity to become part owners of the company. Facebook employees, for example, get restricted stock units (RSUs). They are shares that become sellable on a set schedule over four years. There are numerous ways businesses can offer up shares of or equity in a company.
Equity is a non-cash compensation. Employers aren’t required to offer it, but may do so to attract and retain staff, encourage long-term employment or to make up for smaller salaries (common in start-ups).
There tends to be specific requirements about when employees can access their equity – for example, working for the company for a certain period of time or only being offered to people once they reach a certain level of seniority or performance. If you do offer equity, it may also be negotiated in the same way a salary can be.
The idea with equity is that it incentives employees to add value to the company. There’s an element of invested interest there. If they add value to the company, they are adding value to the equity they own. It’s a great way of creating employee buy-in.
As mentioned, total reward encompasses much more than just salary, it’s important to understand the other key elements, namely - benefits, perks and rewards.
Equity is a non-cash compensation. Employers aren’t required to offer it, but may do so to attract and retain staff.
A company benefit is a non-wage related compensation offered to employees, of which there are different types.
First, there are statutory benefits which are compulsory for businesses to offer by law. In the UK these include:
Some employers choose to offer much more than the minimum legal requirement and have put in place initiatives such as:
Expanded maternity leave
During the 52 week’s statutory maternity leave, employees receive 90% of their average weekly earnings before tax for the first six weeks and then either £148.68 or 90% of their average weekly earnings (whichever is lower) for the next 33 weeks.
Generous annual leave policy
Employees in the UK are legally entitled to 5.6 weeks’ paid holiday per year (28 days for an employee working 5 or 6 days a week). Some companies have decided to increase the number of holiday days or even give employees unlimited holidays to ensure people are able to take a break whenever they need to.
Increased pension contributions
Employers are required to establish a pension scheme and enrol employees automatically. There is a total minimum contribution rate, often split between the employer and the employee. The employer has to contribute a minimum of 3%, and the employee has to contribute a minimum of 5%. Some have chosen to contribute more than the minimum 3%.
These examples are often referred to as non-statutory benefits or benefits-in-kind. For more information on UK statutory benefits, and how great companies are looking to elevate these to become best-in-class employers, check out Ben’s guide in collaboration with Boundess.
Employee benefits typically cost money. To best spend a company’s investment into its staff, you should survey your team before adding benefits to work out what they want. According to Aviva, the 10 most in-demand benefits are:
22-35 days of paid annual leave
Flexible work hours, including working from home
Paid sick leave and/or critical illness cover
Bonuses and/or profit and share options
Training and career development
Health and/or life insurance
Unlimited paid annual leave and/or the option to buy and sell annual leave
Free meals and/or drinks
Eye tests and/or dental
(Identified by respondents as one of the workplace benefits of greatest interest to them)
Employee benefits typically cost money. To best spend a company’s investment into its staff, you should survey your team before adding benefits to work out what they want.
There are many of these surveys out there that place similar benefits as a priority, but the order does vary. This highlights the need to ask your own employees to discover what matters most to them. For example, the Aviva survey found that Londoners’ choices are different to elsewhere in the UK, rating both free meals and subsided travel as more interesting to them.
If a statutory benefit is a ‘need-to-have’, then a perk would be a ‘nice-to-have’. They are extras that aren't typically monetary-based, don’t tend to be listed in contracts and are rarely a legal requirement.
Perks should offer something which appeals to employees, makes their working life easier or more enjoyable, supports their life outside of work or simply lifts up team morale. Perks vary hugely, from ‘pawternity’ leave to life-changing work-from-anywhere opportunities. Some of the most common perks in the UK include:
The best perks offer tangible benefits to how an employee lives – not just their working life, but their life outside of work. It’s all about recognising employees as humans, not just staff. Offering a balance of perks that cover health, wellbeing, happiness, socialisation, finance and future planning can make a huge difference to working adults.
Recognition should be a huge part of any total reward strategy. As human beings, we have a huge need to be recognised and appreciated. Take Maslow's hierarchy of needs, for example. While compensation and benefits support a fundamental need, recognition and career advancement support higher-level psychological needs. When these are met, we’re actually driven to do more.
It feels good, too. When we feel appreciated, our bodies create oxytocin, improving both trust and empowerment in the workplace.
But are we getting it right? Well, 56% of respondents working for small and medium-sized (SME) organisations do not feel like they are being recognised in full for their merits, according to research. More than three-quarters (78%) said they would work harder if they felt more appreciated.
What’s more, UK workers may be getting less recognition within their career as a result of working remotely – despite working harder. The poll of 1,085 employees found 20% said they received less recognition from their workplace since they started working remotely. This is despite 55% saying they were more likely to work additional hours since working from home. It’s an important reminder of the informal interactions and appreciation that tends to happen in an office environment.
While it’s easy to dismiss recognition as simply something that’ll happen naturally, it’s clear to see that programmes of recognition are needed.
Managers and employees aren’t always equipped with the right tools for rewards and recognition. Although a simple thank you can go a long way, there does need to be a drive for something more impactful. A culture where recognition is regular, encouraged and supported by investment. After all, it should be taking place throughout the company.
Here are some tips for embracing recognition:
Peer-to-peer recognition is one of the most powerful. Although leaders and managers should be setting the right example, you should be enabling employees to regularly recognise each other. Whether that’s starting your team meetings by acknowledging other people’s successes or voting for the team member of the quarter, gratitude should become a habit and commonplace throughout an organisation.
If you are the person expressing some thanks, remember to make it meaningful. Vague or sweeping statements may come across as insincere. They may actually be worse than no thanks at all. To express real appreciation, try to recall specific moments or give detailed feedback.
A lot of thank yous happen one-to-one. While that is great, some people do crave wider recognition. They’d like to be celebrated in a way that other people can see. Find opportunities to praise these people publicly, perhaps on team communication tools such as Slack or in all hands meetings.
To encourage widespread recognition, you can invest some money into a dedicated recognition budget. Within this budget you may want to consider:
Recognition goes beyond acknowledging what’s already happening – it’s about what’s next too. If an employee is regularly noticed as someone who's outperforming in their role, what’s the next step for them? If managers are discussing career opportunities, future growth or even giving out assignments which stretch people, it will be interpreted as evidence that employees are valued.
This is where a total reward strategy comes into its own because it considers how all elements of recognition interact. For example, remote working. Simply by offering the choice of where employees can work (full-time or occasionally), businesses can give a signal of trust and appreciation. Now that flexible working (where the type of work allows) is regarded as a fundamental element in the new world of work, those who don’t offer it will almost certainly lose out on top talent.
Recognition is one of the greatest motivators. Don’t ignore it. It doesn’t always have to be an expensive gesture. In fact, the things you can do for free are some of the most effective. It’s simply about making recognition a habit within a company. While formalising a strategy for recognition may seem forced, it encourages those informal expressions to become more commonplace. A culture of appreciation is encouragingly contagious.
56% of respondents working for small and medium-sized (SME) organisations do not feel like they are being recognised in full for their merits.
Perks are given to all employees. While rewards are accessible to all employees, they tend to be given as a thank you – a way to recognise and encourage certain values or behaviours. They can be linked to performance. If an employee does a really good job, meets or beats their targets, shows integrity, refers a client or new employee, they may get a reward. It’s up to the employer to decide what’s worth recognising and is largely based on the behaviours they want to encourage in the workplace as well as company values.
Companies also have to define the format of the reward. It could be a sabbatical due to length of service, a gift for completing a successful project ahead of time, or a bonus for meeting performance-based targets.
To create a recognition-rich culture, you have to determine salary structure and which benefits-in-kind and perks will have the highest return on investment in terms of enhancing the employee experience and company culture.
First things first, a total reward strategy shouldn't be seen as a fix for workplace issues. It’s fundamental to helping businesses attract and keep employees engaged, but it can’t be seen as something that can make up for problems in the workplace. If businesses try to do this, it’ll just be plastering over the cracks. That said, total reward is all-encompassing by design – you can work on identifying (and solving) problems while seeking to deliver additional benefit.
A good place to start is by looking at common reasons employees are unhappy and why they ultimately end up leaving their jobs. Research reveals that half of Brits (52%) want to quit their jobs. The top ten reasons were:
Want higher pay
I’d like a new challenge
There is no career progression
It’s too stressful
I just hate it
I have to work too many hours
I’m not learning any new skills
I don’t feel support by my boss
I want to change industry
But employees don’t tend to make impulsive decisions. 79% of people admit they take up to two years to work up to leaving on average. That is valuable time you have to make changes to improve employee happiness – to align your company’s offering with the values that matter to you.
Some of those values will be shared across companies and employees. For one, to have access to the tools and resources to do a good job. A worrying number of employees are regularly facing stressful situations which detract from their ability to work productively – 38% in fact, according to research. Many factors were cited as contributing to employees feeling stressed, including unrealistic expectations and unmanageable workloads.
COVID-19 has also created higher stress levels within workplaces as people tried to juggle working from home with the worries of a global pandemic. It has really highlighted the need for businesses to focus on wellbeing. If you have a highly stressed workforce, simply offering up free snacks isn’t going to solve the problem. Taking a total reward approach – looking at all the elements which contribute to an employee’s wellbeing – can help you create a supportive environment.
You’re focusing on addressing what your employees need, rather than offering up perks of no value. And the best place to start is simply asking your employees. You need to figure out what they consider rewarding and what might be dismissed as an empty gesture. It’s pointless wasting time and money rolling out a total reward strategy without asking the people it’s meant to recognise.
Company loyalty could increase if benefit options were customised to meet individual needs. When you create a total reward package with employees in mind and ensure they’re clear what benefits are on offer to them, usage rates are likely to be much higher. You can do this by:
Choice is an incredibly important factor in rewarding employees. Giving employees the opportunity to contribute their own ideas treats them as individuals and allows your investment in reward to have maximum impact. When planning your benefits, it’s important to be flexible to ensure that employees are getting the most value. For example, say you want to recognise employee longevity. You could simply give them a bonus. Or you could make it personal, giving them a choice to have an experience that’s important to them.
A good place to start is by looking at common reasons employees are unhappy and why they ultimately end up leaving their jobs.
When it comes to rewarding employees, there are some rules and regulations to be aware of. It’s always best to get the advice of a professional, but the following areas are ones you need to consider:
When it comes to benefits and tax, there’s an important distinction to make between:
(e.g. extra parental leave or holiday days). These are not taxed any differently or additionally to regular income because they don’t increase the gross pay.
These can represent extra taxable income and often require additional taxation. When they do, employees pay income tax on them, and they are indicated on the payslip. In most cases, the full or partial monetary value of the benefit in kind is “added” to the salary, and the total is taxed according to UK employment tax laws.
Employers need to present to HM Revenue & Customs (HMRC) a declaration with details of any benefits in kind given to each employee through the P11D form, which lists the benefits and expenses eligible to pay the Class 1A National Insurance Contributions for the relevant tax year.
The HMRC then calculates the Class 1A NIC contributions that the employer needs to bear on these amounts. If the employer doesn’t include the benefit in kind in the employee’s payroll, the employee should tell HMRC about any benefits they or their family start or stop getting from work – even if their employer has already taken Income Tax and National Insurance for them.
There are provisions for some benefits in kind to be either fully or partially exempt from tax. The HMRC treats the following benefits in kind as tax-free:
Beyond these tax breaks, a benefit in kind is considered ‘trivial’ and is not taxed if it’s all the following:
There is no limit to the amount of total trivial benefits an employee could receive, excluding directors of closed companies – which is capped at £300 per year.
If your team is spread across countries, it can make paying them a little more difficult. Not only is there additional scope for unfairness, there’s extra legal complexity. As Omnipresent explains, finding that top-tier remote talent is only the first step. Once hired, you’ll also need to onboard them and process payroll. For payroll, they explain:
The main thing to be aware of when paying and rewarding staff in different locations is whether they are a contractor or an employee. Contractors are a flexible alternative to permanent employment for many businesses. They can provide their skills and services for a set amount of time. Contractors can be self-employed, sole traders, or run their own limited company. They work for themselves or an umbrella company or agency that employs contractors.
It’s easy to think that contracting will solve remote payroll issues, but misclassifying an employee as a contractor can be regarded as non-compliance and the business could be penalised.
When considering pay and benefits across borders, you must also consider employer and employee contributions to things like pensions or healthcare. Different countries will have different tax rules – you have to follow the laws of the country or region where the employee is. Both payroll taxes and mandatory contributions must follow the local regulations of the employee, not the employer.
Employers need to present to HM Revenue & Customs (HMRC) a declaration with details of any benefits in kind given to each employee through the P11D form.
While there may be legalisation to consider, rewarding your employees is worth the effort. After all, the people who work for your company are your strongest asset. Staff turnover, sick days, absences and so on – these are critical to the business and should be recorded and analysed regularly. They can reveal trends in employee happiness, engagement and other important insights.
Rewards and recognition in particular are tools often used to keep employees engaged and motivated, as well as to attract new talent:
Deloitte says recognition is among the top three most effective non-financial factors for retention. In companies with recognition programmes, employee engagement, productivity and performance are 14% higher than in organisations without recognition.
There is a measurable impact on profits too, with a 15% improvement in engagement resulting in 2% increase in margins. According to Gallup, globally, businesses lose approximately $7 trillion each year due to lack of motivation. Keeping staff engaged and productive has a direct impact on bottom lines.
There are other financial motivations for reward and recognition too. Recruitment and re-training is costly (around £3,000 an employee on average in the UK) and takes time (around 27.5 days).
In summary, businesses should be focusing on creating a recognition-rich culture because it:
It’s also a key business responsibility to keep employees healthier, happier, and more productive at work. When employees are supported and recognised, they are more likely to do a good job. That’s largely because employees benefit in the following ways from a total reward strategy:
There is a measurable impact on profits too, with a 15% improvement in engagement resulting in 2% increase in margins.
A total reward strategy shouldn’t be rushed. There are a lot of stakeholders and experts from different areas of the business that’ll be involved – whether that’s from a tax, practical or inspirational perspective. Before you roll out any changes, it’s worth asking yourself:
Your approach to total reward should treat people as individuals and have elements that appeal to different people with unique circumstances. For example, a recent graduate living in a city is likely to feel recognised by different benefits and perks than a father heading towards the latter end of his career.
Don’t be afraid to look at what’s worked for other companies. There’s a lot to learn from early innovators in employee reward. Although your strategy should be aligned with your own company values, it should also be focused around factors known to generate maximum results.
If you haven’t engaged with your current employees about what would work for them, you’re missing a huge opportunity. They are full of useful insights. After all, they know what would offer true value to them.
Your total reward strategy should be easily communicated to people who might like to join your workplace. It should give them insight into daily life, progression opportunities, the culture and social experience, and your perks.
Your work isn’t done once you’ve rolled out a total reward strategy. You’ve got to find out (and track) the impact it's having. We recommend:
Different factors can impact how well your total reward package is meeting your employee’s needs. Take COVID-19, for example. It forced many businesses to focus on or bring in new wellbeing programmes. You may need to tweak and adjust due to external influencing factors. Our benefits benchmarking report found that 44% of businesses plan to add budgets or allowances for staff to spend on their wellbeing over the next 12 months.
When measuring how effective your strategy is, you want to find out directly from your employees things such as:
Total reward is designed to attract, motivate, retain and engage employees. While some of the factors below are expected in any business – people will need time off sick and may leave for their own reasons – there are some business insights you can monitor and track to gain a greater understanding of the impact certain initiatives have. These include:
When you’re deciding whether to implement a total reward strategy or adjust your current recognition programme, remember one thing: talented job-seekers have a choice. What you offer both current and prospective employers holds a lot of weight in that decision. The right people will join your company and stay with you if you treat them well.
Employees of today arguably have more opportunities than ever before. For example, there’s less expectation to stay in a company for any length of time and the coronavirus pandemic has resulted in remote work being more commonplace. These are just two factors why companies should be focusing on attracting and retaining employees. In return for the skills, capabilities and performance they bring, what are you offering? A total reward strategy can help establish a strong employee value proposition for your company.
Your approach to total reward should treat people as individuals and have elements that appeal to different people with unique circumstances.