Total rewards refers to the tools and benefits that a company may use or engage to attract, motivate and retain employees. A typical total rewards program includes five components: salary and overall compensation; benefits; training, development and advancement opportunities; work-life balance and flexible schedules; and rewards and recognition. These programs play a crucial role in engaging potential and current employees, maintaining high employee morale and retaining employees.

Definition

Total rewards includes salary, bonuses, stock options, overtime pay, vacation pay, health benefits and purchase programs. It also includes intrinsic rewards, such as recognition and awards that employees find meaningful. A total rewards program incorporates all the compensation, benefits and additional items provided by an employer that employees see as valuable. An effective program both leverages the program as a whole to target all employees and leverages individual components as needed to target specific employees.

Lag the Market

A company's total rewards program may lag the market due to budgetary constraints. For example, a company may pay below-market salaries or provide minimal health and retirement benefits. Small business total reward programs may reflect especially pronounced lags due to the lack of size and financial stability to offer large salaries or significant health benefits. A lagging rewards program could lead to trouble meeting human resource goals as employees learn about the size of the gaps.

Appropriate Mixture

Companies need to properly blend competitive salaries with benefits and intrinsic value. Small businesses with limited resources must decide what benefits and what types of benefits to include. For example, employers must determine if employees prefer preferred provider organizations over health maintenance organizations for health benefits or prefer high deductible insurance combined with health spending accounts over flexible spending accounts. With limited resources, an appropriate mixture that satisfies employees goes a long way to supporting the company's human resource goals. The wrong mixture can derail HR objectives.

Self-Focus and Competition

Many companies stress the importance of the team in achieving company goals. The team focus assumes people perform optimally when they work as a whole, achieving more as a group than as a collection of individuals. However, employees may focus too much on earning the individual benefits and rewards contained in a total rewards program. The more employees focus on individual efforts, the more potential their efforts have to decrease their team’s effectiveness. Some spirit of competition can be good, but too much can undercut the goals of a reward program.