For the latest version of this article please go to Total Reward as a HRM model
Total reward has been essentially developed to help employers satisfy their most important needs, to wit: attract, retain, motivate and engage individuals not just by means of salary increases, bonuses, golden handcuffs or other types of financial rewards, whose effectiveness in the mid- to long-term is debatable at best, but in a way that enables organizations to yield long-lasting results.
It can be argued that the “birth” of total reward is essentially mainly due to the ineffectiveness of exclusively-extrinsic-based reward systems and approaches. Despite employers have experienced over the years that cash may prove to be an effective means to attract talented individuals, these have on the other hand found out that money on its own cannot effectually help them to retain and motivate individuals, if anything in the mid to long run. These conclusions are indeed supported by the findings of several studies and investigations carried out over the past and recent years as well.
The CIPD (2005) has indeed identified some additional reasons behind the growing need for and emergence of total reward approaches:
- The increasing costs faced by organizations for some types of benefits like pensions;
- The circumstance that individuals are more motivated by training and development opportunities;
- The diversity typifying the composition of the employee population of any business, which makes it particularly difficult to find out what each individual values the most;- The inconsistencies related to the message which essentially the different reward options sometimes get across.
The change of perspective and its new focus on the meaning of reward intended as a total reward system is indeed due to the sensible changes and developments occurring in the external and more specifically commercial environment, with which organizations are constantly prompted to cope. Markets increasingly put pressure on employers in order for these to contain their costs whilst maintaining, or rather, improving their quality standards.
In their quest to ensure their organizations the skills necessary to attain their intended objectives, employers are also constantly prompted to cope with the ever-changing labour market conditions, which make it sorely difficult for them to recruit, retain and motivate talented individuals without periodically granting them pay increases. As suggested by Torrington et al. (2008), under such circumstances employers may either decide to rely on fewer better paid individuals in order for these to carry out the required work more effectively and efficiently or capping salaries at large or search for additional more effective solutions to reward employees. It is indeed the latter option which has finally prevailed and which has accounted for the majority of employers opting for the “total reward” approach.
Wilson (2008), highlighting the transactional aspect of this approach, defines total reward as the set of policies, programmes and practices providing employees “something of value in return for their contribution to the mission and goals of the organization.” The Author seems hence to support the idea that employers have recourse to this means in a bid to pursue a specific and well-identified goal.
Armstrong (2006), who in his definition of total reward does not make any reference to its origins, defines it “as a combination of financial and non-financial rewards available to employees.” He also cites the definition formulated by Manus and Graham (2003) according to whom total reward “includes all types of rewards – indirect as well as direct, and intrinsic as well as extrinsic.”
The sum of these definitions, each emphasising different but converging aspects of total reward, ultimately offers a remarkable insight of total reward aim and objectives, that is, provide staff with something valuable in exchange for their working activity on the one hand and more specifically and fittingly identify that “something valuable” on the other hand.
The typical components of total reward (CIPD, 2005), which represent the groupings of levers employers can actually have recourse to in order to motivate, engage and retain individuals, are basically four:
- Financial reward,
- Learning and development,
- The working environment.
Employers essentially develop and implement reward policies and practices with the final aim of achieving competitive advantage. Nonetheless, the mere duplication of easy-to-replicate policies is likely to end in a miserable failure so that employers need to pay careful attention to the development of their reward practices, namely when deciding on the intangible components of reward and in particular when developing the “working environment” component. Whereas managing the tangible financial components of reward is relatively unproblematic, these components are also quicker and easier to replicate by competitors. By contrast, the intangible components of rewards are much harder to design and implement, but also to replicate.
In order to attain and maintain competitive edge in the long-term, organizations must strive to improve their staff perceived worth of the intangible elements of their value proposition, which is indeed not an easy task to perform, never mind assess its effectiveness. Moreover, intangible rewards are more likely to be “intrinsically”, rather than “extrinsically” motivating; albeit managers can contribute to their attainment, these cannot by definition directly provide intrinsic reward (Torrington et al, 2008). An example of intrinsic motivation is represented by an employee putting extra effort into a project simply because s/he finds it interesting, compelling enjoyable and fulfilling. This may result on the attainment of an individual perceived considerable satisfaction, but does not directly result from any management action.
What all managers can and definitely have to do is invariably trying hard to create and sustain a culture favouring individual intrinsic motivation and hence instil in employees the feeling that their work experience is intrinsically rewarding. It is in fact this component which is most likely to make a positive impact on individuals, both in engagement and motivation terms, in the short and long run as well.
Summarising the aims and characteristics of total reward, it can be contended that it essentially aims at helping organizations to motivate and engage individuals in order for businesses to achieve competitive edge. To effectually attain the final aim reward policies and practices clearly need to be aligned with the overall business strategy and HR Strategy as well.
Total reward can be ultimately considered as an additional means to an, or rather, to “the” end, namely the attainment of an organisation’s intended strategy. As it the case for HR practices at large, notwithstanding, for the development of total reward policies the one-size-fits-all approach is utterly unsuitable.
One of the most distinctive features of total reward is that it is based on the multiplicative and synergic effect produced by the bundle approach, which is actually at the basis of all the HRM models developed hitherto. Terms as alignment, motivation, policies, best/right fit and bundle are actually keywords common both to HRM and total rewards models.
When designing and developing total reward programmes as well as when making decisions about the most suitable HRM practices to be adopted and implemented within their organisations, business leaders and HR professionals can essentially have recourse to a number of diverse drivers, which they can and actually differently use according to the aim they want to attain in practice. During this process employers should have recourse to all of the components available to them, albeit not necessarily to all of the elements forming each component. The most difficult feat HR and reward professionals have to perform, nonetheless, is deciding and determining how and in which measure have recourse to each of these components, safe in the knowledge that each of these taken in isolation will not enable them to yield significant results, if any.
Separately analysing each of the components typically forming a total reward system it clearly emerges that a total reward approach is not actually adding that much to what employers already know and to the levers these habitually use to attract and retain individuals. HR professionals invariably strive to formulate and execute HRM policies and practices aiming at attracting, retaining, motivating and engaging individuals differently emphasising, according to the type of bundle these consider as the most suitable for their organization, the role of learning and development, job design, job challenge, flexibility, internal mobility and reward. In terms of bundling, total reward is clearly similar to HRM models, which are also defined by a set of activities aiming at facilitating the execution of business strategies. That is why total reward can basically be considered as a HRM model on its own.
Differently from some HRM models and frameworks, nonetheless, albeit total reward, as suggested by O’Neal (1998), “embraces everything that employees value in the employment relationship”, it does not provide visible links and details of the causal interrelations existing between the different components of the models, at least not in a such systematic way as HRM models in general do.
Armstrong (2006) claims that the total reward approach is holistic, its success relies on the use of all of the possible options by means of which individuals can be rewarded and receive satisfaction from their work. Total reward, however, provides just the list of the ingredients which HR professionals can use, but not the recipe explaining how to use and combine the different ingredients together.
The People Performance model developed in the Bath University by Purcell (2003) and his colleagues, just to cite an example, in contrast, clearly stresses:
- The benefit provided by recruitment and selection by ensuring organisations the abilities and skills these need,
- The role of pay satisfaction to motivate and incentivise employees,- The existence of direct linkages between teamwork, job challenge and involvement to provide employees opportunity to participate.
The model also recognizes the linkages existing amongst all of its components and the impact each component has on the successful unfolding of the overall process and the achievement of the pre-identified aim.
In conclusion, it can be averted that, although total reward models can be considered sort of HRM models in embryo, these cannot be considered as having gained the full HRM models status in that these lack of an apparent structure in which all of their components are clearly linked one another in a systematic and logical order and relation.
Longo, R., (2011), Can Total Reward be considered an additional model of HRM?, HR Professionals, [online].