Monday, 19 December 2011

The eight Ws of Total Reward Statements

What total reward statements are
Total reward statements are personalized documents prepared by HR and reward specialists for executives, managers and employees, or for any one of these groupings, to ensure that these are fully aware of the value and worth of the overall reward package they receive.
What they contain
In order to provide individuals a thorough and comprehensive knowledge of their overall reward package total reward statements should contain details of both the tangible and intangible rewards offered by their employer, including the perquisites received under a flexible and eventually voluntary benefits programme. In addition to fixed and variable pay, total reward statements need hence to contain details about pensions, private medical insurance, life assurance, shares schemes, company car, fuel supply, car insurance, taxes related to the use of the company car (where applicable), laptop, mobile phone, corporate gym, subsidised canteen, luncheon vouchers and all of the other benefits eventually offered to employees.
Since statements also have to show and clearly state all of the elements included in the intrinsic components of a total reward system, these should also provide accurate details of the coaching, training and development opportunities offered by the employer to their employees (Ratcliffe and Evans, 2010).

With particular reference to the benefits associated with the offering of share options programmes, that is to say the opportunity offered to employees to buy company shares at a reduced price, Silverman and Reilly (2003) stress the “educative” role that statements can play for making individuals understand or not forget that the value of their shares, and consequently of their organization, daily fluctuates up and down as the stock market itself.

Organizations offering to their workforce flexible and voluntary benefits schemes have to list into statements these components, too; the documents would otherwise result in being somewhat of curtailed. This section of the document essentially reflects the choices made by each individual (Silverman and Reilly, 2003) and represents a good opportunity for employers to remind individuals that part of the benefits they receive have been chosen by themselves.
Despite identifying the distinct exact financial value of some components of the overall reward package received by each employee, such as sick pay, paid maternity and paternity leave, car parking and on-site canteen and cafeteria access, might represent a difficult feat to perform, reward professionals should do whatever they can to ensure that the information showed in the statements is as accurate as possible (Morgan, 2009).
In addition to a summary of the benefits received by each individual from their employer, TRS also usually contain an outline of the annual cost faced by the organization to implement total reward schemes and a chart illustrating the different components or categories of an individual total reward package (Silverman and Reilly, 2003).
By letting employees better understand the value of their overall personal package and of each benefit forming this, total reward statements also clearly play a remarkable role in enabling employers to promote their value proposition.
Why introduce TRS
The employers’ need to provide employees with statements essentially arises as somewhat of a countermeasure in response to the typical individual attitude towards employee benefits; employees in fact habitually tend to not value and appreciate these. As contended by Rowley (2009), individuals very often behave like “philistines” when it comes to recognize the real value of the benefits they receive. Statements are essentially introduced by employers to purvey to the entire workforce clear and detailed information on “how much more the company provides for its employees than their pay” (Armstrong, 2009).

The reason why some employers furnish employees with total reward statements, nevertheless, is not exclusively associated with the employees’ lack of appreciation of the benefits they receive, but also with their genuine lack of awareness and understanding of their worthiness, which is more often than not due to the circumstance that some benefits have little or no visibility.

The findings of an investigation conducted by Towers Watson (Thompson and Milsome, 2001) revealed that employees at large estimate the benefits offered by their employers to represent less than 20 per cent of their overall reward package, whereas it actually habitually accounts for 30 per cent to 40 per cent of this. A more recent survey conducted by Hay Group (2010) showed that a considerable 78 per cent of respondents estimate the value of the benefits they receive as lower than 10 per cent of their overall reward package. This is not regrettably all; a Hogg Robinson and Prudential investigation (Thompson and Milsome, 2001) in fact revealed that a surprising 4.8 million individuals who benefited of corporate life assurance were completely unaware of being entitled to such a benefit.
The “Benefits Employee Rewards Watch Survey 2009” has indeed investigated the phenomenon more in-depth, with the aim of not only determining the dimension of this occurrence, but also identifying the reason(s) behind it. According to this study, employee unawareness of the worth of their reward package directly depends upon the lack of employer communication and is thus consequent to employers not giving their employees any document outlining the value of their offering. A Thomsons Online survey (2009) revealed that 70 per cent of employers know that their employees are not fully aware of the real value of the reward package they receive; result which fully matched with another important conclusion emerged from the investigation, to wit: the rate of employers not offering TRS amounted to a remarkable 70.02 per cent. In different contexts, periods and with different figures all of these investigations essentially show that the great majority of employees are genuinely unaware of the real value of the reward package they receive.
The empirical data gathered over the years invariably show that employee perception about their overall reward packages is all too often unrealistic and definitely underestimating the real value of what they actually receive. As claimed by Silverman and Reilly (2003) “this ignorance” of the value of the benefits offered by employers to their staff is not atypical. This occurrence clearly damages and weakens the perception of the worthiness of the overall reward package an individual receives; total reward statements can definitely help to address the problem.
TRS can also effectively assist employers in implementing a more appropriate and consistent benefits management system. By means of statements organizations can gain a reliable and thorough understanding of their reward system state of play and set a clear, firm starting point from which to develop future changes to the overall reward package composition and system. This does not really represent a negligible benefit for employers.
In general, organizations consider of paramount importance their staff appreciation of the worthiness of the reward package they receive; the findings of a survey carried out by Vebnet (2009) revealed that this is indeed considered by employers as the second most important issue associated with benefits, second only to the cost of meeting salary pensions schemes liability.

To whom are TRS addressed
As discussed earlier, to achieve the intended objective, that is to say make each employee fully aware of the value of the overall reward package s/he receives, personalization is paramount. Each statement should hence reach just the individual for whom it has been prepared.

To reduce the workload that such personalised and bespoke type of document requires, some organizations use to prepare TRS only for managerial and executive positions or for the talented individuals these have more interest in retaining.
Line managers habitually tend to underestimate the value of their direct reports’ reward packages, using to compare their base pay with that offered by their competitors, rather than considering and focusing on the overall value of the package (Silverman and Reilly, 2003).
Preparing TRS for every employee, rather than just for managers and high flyers, clearly requires additional efforts and resources. It is obviously different drafting TRS up for a few dozens of managers rather than doing it for hundreds or even thousands of individuals, but the return on investment can be remarkable and well worth the efforts required.
The benefit organizations can derive from giving each employee evidence of the advantages this enjoys are not limited to circumscribe line managers occasional capriciousness, these can be indeed priceless in terms of developing, strengthening and fostering the employer brand image as well as helping employers to retain staff in general and high flyers in particular.
To attain these objectives, nonetheless, the genuine cooperation of line mangers is of paramount importance so that these have to become keen advocates of both total reward schemes and total reward statements. In order to truly support these line managers need to appropriately know what total reward and TRS are; also in this instance providing them with the required training clearly assumes a particular significance.
Whether line managers do not understand the mechanism and the way a total reward package is designed and operated, these will not be clearly able to understand the value of their own reward package and let alone to explain to their reports the worthiness of theirs. Line managers cannot and should not thus act as barrier-makers, but rather as convinced and convincing enablers.
Which organizations could benefit more from TRS
Total reward statements can prove to be useful for all of the organizations including in their total reward package a considerable number of benefits. There are, nonetheless, some specific instances in which TRS can reveal to be particularly effective and helpful.

When organizations are experiencing an unusually high staff turnover, for example, it may prove to be well worth investigating whether, amongst the main causes behind this undesirable occurrence, individual perception of receiving a poor reward may play a role. More often than not, staff turnover is in fact caused by such a circumstance (KMPG, 2002).

Proving employees with TRS can effectually help employers to emphasize the value of the reward packages they offer; firms aiming at fostering their image of being the best in their industry will by extension unquestionably derive an enormous benefit from them.

Statements will not certainly contribute to increase the financial value of the employees’ reward packages, but are likely to enable individuals to better understand their worthiness, which may in turn contribute to employees giving and additional intrinsic value to the overall reward package they receive.
Total reward statements may play a remarkable role in those organizations where are offered a great deal of individual benefits and rewards, but where at the same time the concept and idea of total reward are not adequately fostered. In this instance, statements can enable employers to put order in their reward jungle. Putting together all of the tangible and intangible, flexible and voluntary benefits and clearly explaining their value should definitely contribute to do justice to the overall reward package received by every individual (Lucas, 2002).
By enabling firms to stress the value and cost of the benefits received by employees, TRS have revealed to be particularly useful for both those organizations offering their workforce flexible and voluntary benefits programmes (also during their pre-introduction stage) and for those businesses in the process of implementing substantial changes in their reward packages (Ratcliffe and Evans, 2010).
Statements have indeed revealed to be particularly important also for the global organizations aiming at developing a common total reward vision (Lucas, 2006). In this case, TRS enable organizations to thoroughly identify and track all the benefits and reward system designs across the geographical areas concerned. The introduction of TRS also helps corporations to identify the most appropriate source of data enabling them to improve the management of benefits in each country, contributing in turn to ensure homogeneity to the overall organization data management practices.
TRS can also definitely provide companies new insight into the cost of benefits incurred by the company worldwide and represent a good starting point for further investigations and analysis. Yet, statements can ultimately enable corporations to globally establish the idea of total reward as a global principle (Lucas, 2006).
When should employers avoid introducing TRS
So crucial it is considered the importance of showing in TRS only reliable and accurate data as to be strongly suggested not introducing these in the event employers should be insecure about their reliability.

Employers should also avert issuing total reward statements soon after having completed a process of acquisition of or merger with other organizations. Since the benefits structure and payroll system of the different businesses involved might be different, before preparing the documents reward specialists should collect and make comparable the data produced by all of the businesses concerned.
The introduction of total reward statements can also prove to be rather problematic in those cases in which the different types of benefits offered by an organization are managed by different external providers, whilst others are managed directly by the HR function. The larger the number of perquisites offered, the more difficult will clearly prove to be issuing a unique statement (Pearce, 2009).
Employers habitually tend to avoid introducing TRS when these actually offer a reduced number of benefits in addition to base pay and when, broad and varied offering notwithstanding, take-up rates are fairly low. As suggested by Morgan (2009), nonetheless, in the latter case issuing statements may indeed represent a very good opportunity, if anything, to foster the broad array of benefits actually offered by an employer.

One of the most recurring reasons why firms do not issue total reward statements is that these entail a heavy administrative burden. Despite technological advances can definitely help to cushion the blow, especially when designed and developed internally, drawing statements up for every employee obviously requires time and resources. Statements need to be updated at least annually so that also the maintenance factor has to be duly taken into consideration, too.
Employers absolutely keen to introduce TRS, but do not wanting these to impact their HR function workload can also opt to outsource the overall activity accepting the considerable costs which this approach implies.
With what frequency
Organizations should align the frequency they update total reward statements with the frequency they change their offering or, for those organizations which have introduced flexible and voluntary benefits schemes, to the frequency they offer their employees the opportunity to change the composition of their take-up. Usually it happens once a year but it should not be overlooked that in some instances employers give their staff the opportunity to change their benefits take-up in coincidence with specific circumstances and events which may occur at a higher frequency. Statements should hence be updated accordingly.

What means and channel
One of the most important decisions employers have to make when considering to introduce TRS concerns the identification of the instrument which has to be used to convey the desired information. Organizations whose employees’ work entails the use of or the frequent access to a computer will arguably decide to have recourse to the corporate intranet or to a dedicated website. By contrast, it would obviously make no sense implementing online statements whether the overall employee population or anyhow a relevant part of this have no frequent online access opportunities.

Some organizations producing statements only for executives and senior managers, in order to emphasize and stress the exclusivity of the document and the top quality of the benefits offered, use to print TRS on superior thick paper and insert these into expensive cases, which certainly help to catch managers attention. In those cases in which statements are destined to the overall workforce and a hard copy is intended to be handed to each member of staff, a booklet might represent the most appropriate solution (Pearce, 2009).
Technological advances have clearly much more to offer to TRS implementation. Online statements can clearly provide individuals a more captivating and immediate overview of their reward package. Yet, by means of pop-ups and links employers can put their employees in the position to eventually quickly and easily access further information or explanations about their statements content and structure. Online tools will ultimately prove to be more environmentally friendly, cheaper and straightforward to manage and maintain.
Longo, R., (2011), The 8 Ws of Total Reward Statements; Milan: HR Professionals [online].