Why have total reward strategies? Duncan Brown shares his thoughts

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18 / 6 / 2015 10.43am

The total reward concept is not new – Adam Smith, in The wealth of nations in 1776, refers to the “total utility” of work and how employers could offer less pay if they provided interesting jobs and better working conditions.

But it has come to much greater prominence in recent years, initially in the private sector and then into the public sector. NHS Employers, for example, has published some excellent guidance and case material on the subject and we have had the introduction of total reward statements in the NHS to help improve staff understanding and appreciation of their package.

As Armstrong and Murlis (2007) explain:

“The total reward concept emphasises the importance of considering all aspects of the rewards package as a coherent whole…account is taken of all the ways in which people can be rewarded and obtain satisfaction through their work, linking financial and non-financial aspects.”  

As they stress, it can be an effective means to recruit, engage and motivate your workforce and a John Lewis-like way of differentiating yourself from the competition in both service and labour markets. 

It also offers potential cost benefits to cash-strapped trusts – there is some evidence that offering a good all-round package helps to secure higher quality staff and as efficiency wage theory suggests, take the pressure off base pay levels and increases.

Most employers are experiencing a growing diversity of their workforce and some research studies have found that employee groups such as working parents place a higher value on arrangements like flexible working hours that is way above their actual cost to the employer. One study in a bank, for example, found that in our consumer society, employees valued simply being offered a choice, which led to a more favourable view of their total package.

But the approach is not without its risks, particularly in a climate of low wage rises and pension changes across the public sector. Despite its promotion in the private sector and widespread use of the term, flexibility and choice in benefits and rewards is very much a minority employer pursuit, concentrated among larger organisations in the private sector. Only 20 per cent of all UK employers in the CIPD’s Annual Reward Management Survey use the approach.

The annual chore in the private sector of selecting from a generic, ‘chocolate box’ menu of mostly irrelevant or inconsequential benefits choices, designed to save an organisation money and tick a project completion box for the HR function, does nothing to engage employees to perform highly, nor differentiate employers from the competition. Surveys suggest that rewards communications and employee understanding are generally getting worse rather than better.

The key to obtaining the potential benefits and avoiding the pitfalls of total rewards, as NHS Employers work makes clear, appears to lie in three conditions:

  • Knowing your organisational values and what you mean by total rewards – are you trying to improve communications, differentiate yourself in the recruitment market, appeal to different types of staff or drive up overall performance? Each would imply a different approach.
  • Knowing your people and engaging and involving them. Only a third of employers actually do anything in response to their attitude survey results. The NHS Staff Survey gives you a good starter, though you may need to do further investigation of views on rewards to identify the key groupings and needs in your workforce.
  • Being evidence-based but innovative. Reward, more than other areas of HR, is beset by fads and fashions, of which flexible benefits have merely been the latest. So beware of just copying other employers, or even being too influenced by those of us on conference platforms. One size doesn’t fit all. Test out whatever you are planning to increase your chances of success and measure and monitor it over time.

Edward Cadbury, the Quaker founder of the famous confectionary firm, explained his generous employee benefits by explaining that his firm’s performance and employees’ welfare were different sides of the same coin. Total rewards can be a really useful concept to help you square the difficult circle of maximizing employee engagement when financial budgets are tight.

Duncan Brown is head of HR consultancy at the Institute for Employment Studies (IES). Follow him and the institute on Twitter: @duncanbHR @EmploymtStudies

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