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By: Sarah Shepherd on September 1st, 2021

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Employee Total Rewards Vs. Compensation: What's the Difference?

Total Rewards

I’ll never forget the first time I got a Total Rewards statement. I remember looking at it and thinking, “The benefits I get from these people are worth HOW MUCH?!” At the time, I was just beginning my HR career, still working to understand the difference between an FSA and an HSA, so seeing all of these benefits at once blew my mind. Looking back on that moment with years of HR experience, I know that this was not a good thing. Let me tell you why. 

Surprises are only a good thing in the workplace if they involve a birthday cake. When someone is surprised about their Total Rewards, it means that HR hasn't done a great job of communicating all employee benefits. 

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Communicating benefits is an essential part of your strategy to motivate and retain employees. It's also a vital part of your employer proposition. If a new hire is surprised by their Total Rewards statement, it means that they didn't learn about those rewards during the hiring process. And that means that candidates are not hearing all the reasons why they should come work for you. 

Candidates naturally focus on salary when they're comparing jobs. But Total Rewards is a lot more than just salary. 

What's the difference between Employee Total Rewards and Compensation

It can be hard to educate your team on things that you don’t fully understand yourself. Even seasoned HR professionals tend to think about one thing when we think about Total Rewards: pay. But compensation isn’t the only thing that employees gain when they sign a contract with you.

Think of Total Rewards as a banana split. Compensation, which includes all kinds of payments including incentives and bonuses, is the banana. It provides the structure of the whole dessert. But if you ordered a banana split and you just got a plain banana, you'd ask for a refund.  

No, it's all the toppings and extras that make a banana split so delicious. Similarly, Total Rewards includes everything that makes you such an outstanding employer. 

The banana split model of employee total rewardsTotal Rewards is more than just compensation

What are the five elements of a typical Total Rewards program?

What do your employees gain from working for your company? 

All of these things combined are your Total Rewards offering. Some elements of Total Rewards have a cash value, such as compensation and benefits. Others offer value in the form of wellbeing, job satisfaction, or better career prospects.

Total Rewards programs include the following five elements:  

  1. Compensation: This is the employee's total compensation, which includes bonuses and commissions. People want to feel that their compensation is fair, so it should reflect the value of their contribution to the company. It's also essential to benchmark compensation against competitors and ensure that you're paying the market rate.  
  2. Benefits: Health and dental insurance are what generally come to mind when discussing an employee benefits package. There are also many value-added benefits that can be offered within the insurance plans. Employee assistance programs, paid time off,  discounts on fitness programs, and health incentive programs are also ways to expand the offerings to employees.
  3. Work-life Benefits: Leaders are continually recognizing the need for employees to have opportunities to enjoy their personal time off. Remote working is one of the best ways to help employees balance their professional and personal commitments. 
  4. Performance and Service Recognition: Recognition plays a big part in job satisfaction. We all like to know that we're moving in the right direction, and the only way we can be sure of that is with formal acknowledgment from our boss. Official recognition programs make an immeasurable contribution to overall job satisfaction.  
  5. Career Development: People never stop thinking about their own personal and professional growth, even when they're committed to your business goals. A long term career plan, backed up with substantial investment in training and plenty of development opportunities, will show that you are serious about supporting your team as they work towards their own goals.  

Each of these elements is an important ingredient in our big banana split. Compensation might grab a candidate's attention, and more astute employees will focus on the value of their benefits.

But the other three elements are just as important. Recognition and development will help the individual keep moving ahead in their career, which ultimately leads to even greater compensation in the future. Work-life benefits are perhaps the most important of all, as they help people avoid burning out from work-related stress. 

The typical worker spends 4.2 years at a job. Total Rewards helps ensure that they get compensated fairly today, and that they're looked after in the future. 

Launching your Total Rewards Strategy

So I challenge you to think about your Total Rewards strategy as more than just the sum total of employee compensation and benefits. Implementing a Total Rewards strategy means that you align your team with your strategic initiatives and company culture, and to then attract, retain, and engage team members through transparency surrounding compensation and other rewards.

Think about what you do to show appreciation, to create a welcoming work environment, or even to make life after work into retirement more comfortable.  The things employees crave, like career development, flexibility, recognition, and work-life integration, are intangible – you might not pay money for it, and even if you do, it’s a drop in the bucket compared to the rest of your budget.

When you implement a Total Rewards program, you're making sure there are no surprises about your employer proposition. You're communicating loud and clear what makes your organization so great. That will help drive employee retention, while also helping you to attract top talent. 

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