Total Compensation:
Bringing the “Big” Picture into Focus

Companies today are facing budget crunches and resource shortages while dealing with volatile job markets that make acquiring critical talent challenging. Employers depend on their compensation and benefits packages as critical elements in their attraction and retention tool kits. Yet, many employees are unaware of the true value of their “total compensation programs.”

When employees are asked how much they make in a year, the amount given will likely include only base and overtime pay. Sometimes a more expansive number will include cash incentives or bonuses. Rarely can workers quantify the full costs that their employers bear in their total compensation or rewards packages. Employees often don’t realize that the complete compensation picture covers a wide variety of programs, including base salary, incentives, benefits, paid leave, retirement programs and many work-life programs.

According to the U.S. Chamber of Commerce, benefits alone account for nearly 40% of payroll. As medical costs continue to increase year after year, this percentage may become higher. It is easy to see how salary alone does not tell the whole story. How do you ensure that your employees completely understand the total compensation benefits they receive from your organization?

• The first step is to clearly articulate your total compensation philosophy. Now is the perfect time to develop or revisit the philosophy that is the foundation for your compensation and benefits efforts. In its most basic form, a total compensation philosophy is an employer’s approach to attracting, retaining, and motivating the workforce it is targeting.

• Next, there should be a clear connection between your corporate culture and your compensation philosophy. Your philosophy defines the mix of total compensation elements, while making a statement about the company values and beliefs. It also helps to explain to both potential and current employees the organization's commitment to a total rewards program that is competitive in the marketplace.

• As you articulate your philosophy, use this opportunity to benchmark your current compensation and benefits practices and programs. Through this effort you can determine whether your programs continue to support internal equity and market competitiveness. Both are critical to attraction and retention efforts.

• Most importantly, communicate, communicate, and communicate! When the philosophy that drives your total compensation programs is not fully understood by employees, it may not reach its full potential impact or return on investment. Communication efforts need to take place at different milestones throughout the process. Agreement and support from members of the leadership team in the early stages of philosophy and program development are critical.

• Effectively train the management team to help ensure the program’s success. Managers must be able to clearly articulate the organization's compensation philosophy and effectively execute all programs.

• Finally, invest in the distribution of individual total compensation statements. Such statements can serve as highly effective communication tools for use across a broad employee population. In a total compensation statement, include all benefits (core and voluntary) to which the organization contributes, base compensation, incentive and earned variable compensation, taxes paid by the employer on behalf of the employee, perquisites, paid time off and holidays.

Total compensation statements can offer an inexpensive competitive advantage in attracting, retaining, and motivating your workforce. A competitor who offers a higher rate of base pay but a less attractive total rewards program may suddenly become less desirable when employees understand the true value of their total compensation through a comprehensive statement.

Creating or revisiting a compensation philosophy and developing total compensation programs can take significant time and focus from senior leadership in conjunction with specialists from Human Resources. However, the return on the time and investment of designing and communicating an effective platform is invaluable. The efforts will pay off in both a solid foundation for the total compensation package, and a framework to help attract, retain and motivate the entire workforce.

Author: Robert Krajewski, Associate HR Business Partner, Helios HR

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