Evaluate the principle of total rewards and its importance to reward strategy

A reward is not just paid, it is actually financial, benefits and non-financial reward. According to SHRM identified the total rewards strategy is a plan or method designed and implemented by an organization that provides monetary, benefits-in-kind-, and development rewards to employees who achieve specific business goals. Reward should be line with the organisational context and culture, relative to the external market environment. It can help the organization maintain a balance between providing market competitive wages to attract and retain talented people. The use of total reward may procedure part of a strategic approach to reward for many employers. Many organizations are now looking at the experience they offer in a more holistic manner when deciding how best to attract, retain and engage existing and potential employees. The broad aim of a total reward approach is to achieve a better balance between the needs of the employee and the needs of the organization. For instance, some organizations might adopt a total reward approach, providing cutting edge learning programmes together with flexible working options, as well as more traditional aspects of pay and benefits, to recruit, retain and engage the high-quality staff it needs to secure its business objectives. Here are four principles that organizations can use in its total reward system: 

1-     The first consideration in developing a compensation and benefits system is to review the organization’s mission and strategy. They should be an outgrowth of the strategic business plan and the HR strategy.

2-     Alignment with workforce preferences. The rewards program must consider the type of workforce. Entry level and unskilled workers will probably have a very different rewards package than an organization with experiences and highly educated people. This can be done by conducting surveys.

3-     Variability of payment. Although the base salary is the same to people in the same position, variable pay arises due to performance. In their total reward, organization incorporates performance-based incentives meant to encourage hard work. For those who perform better than others, their higher compensation results into higher gross pay than others. Such a flexible and adaptable pay becomes a good measure of success.

4-     This fourth principle entails how payment is arrived at. Although the two determinants are the base salary and performance-based incentives, organization adds another variable; the skills one has to generate results and the value of an individual at the labor market. Some skills are paid higher than others in the market. In the labor market, technical skills such as IT and system administrations fetch higher payment than sales skills. Without observing that, the organization can easily lose such skills which are essential to them.

These reward principles are important to the reward strategy because they help shape any strategy that is developed. They help shape a reward that is acceptable to the employees since when they are involved, they give their opinions to determine how the final reward will be. Secondly, these principles ensure that the total reward is not just a reward. Rather, it is a reward that, by aligning with the set goals, is aimed at helping the company achieve its goals and benefit employees in a wider way. More importantly, employees are paid based on a variety of factors such as skills, experience, and performance. Thus, they can easily optimize their pay by working on the areas that suit each individual best.

Wrote by: Marwan Abdulmalek