Saturday, 29 September 2012

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.
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.

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.


Analysing, for instance, the People Performance Model (Purcell et al, 2003) it clearly emerges that it basically relies on a few pillars, that is, training and development, working environment and reward in order to induce individual discretionary behaviour and increase performance standards. The same pillars are essentially also identified analysing other HRM models like the Harvard Model developed by Beer et al (1984), the Warwick Model developed by Hendry and Pettigrew (1990) and other models as well.

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.
Despite the role played by cash to motivate individuals is considered questionable, it must not be neglected the circumstance that, in a model where a bundle approach is used, properly employed in combination with the other initiatives identified by employers, pay can also effectively help these to attain their intended objectives. 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.
This reasoning has originally led to the conclusion that albeit total reward models could be considered somewhat of HRM models in embryo, these could not be considered as having gained the full status of HRM models. This because 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, 2011). This conclusion, on the basis of the founding assumption that total reward aims and objectives are similar to HRM models aims and objectives at large, also led to posit that appropriately developed total reward frameworks could produce valuable effects and prove to be even more rewarding tools for the organisations themselves.
These considerations are indeed truer in the case of total reward systems developed in the form of four-quadrant diagrams. In these cases their elements are just listed and grouped on the basis of their classification: financial, non-financial, individual or communal components of total reward, whereas no indication is provided of the mode these elements should be used and eventually support one another. Yet, employers cannot obviously use all of the elements available to them in a similar fashion with all of the individuals concerned.

Some of the HRM models developed to date, nonetheless, are actually mainly concerned with the mechanism or the way a process should work, rather than with the identification of a clear correlation between their components and the objectives and aims pursued by means of their implementation. In some cases, albeit in an effective way, models are concerned with just outlining the process necessary to achieve the final end, do not expressing which means should be used to effectually attain the intended objectives. An example of this is represented by the resource-based models (Barney, 1991; Wright et al, 1994 and Hill and Jones, 2001). These models have the unquestionable advantage of showing the clear relationship and linkage existing amongst businesses resources, their strategies and the achievement of competitive edge. More in particular, resource-based view approaches show how the development of internal capabilities in an inimitable way helps employers to develop the most suitable strategies and hence attain competitive advantage, but the recipe to achieve this objective is not actually provided. Being able to count on the support of valuable, inimitable and non-substitutable individuals, whose competencies and skills can be even deemed rare, can be considered as the final objective, the means to the end of achieving competitive edge, but these model does not indeed provide any indication about what employers should do in practice to ensure their organization human capital to gain such valuable features and abilities.
It can be argued that one of the most, arguably the most, comprehensive and detailed HRM models currently available is the People and Performance Model developed by Purcell et al (2003). This model, also known as the AMO (Ability, Motivation, Opportunity) model, not only includes all of the components and elements necessary to induce employee discretionary behaviour and improve performance level standards, but also outlines which components, that is to say initiatives and actions, have to be used by employers in order to induce the desired behaviour and help individuals to gain the required skills. Indeed, not all of the HRM models developed thus far are actually as descriptive and overarching as this is.
These further considerations, the circumstance that total reward systems also tend to take into growing consideration the contextual factor and the need for total reward systems to be aligned with an organization culture and overall strategy, can actually lead to the final conclusion that total reward can be indeed considered as an additional model of HRM.

These further considerations, the circumstance that total reward systems also tend to take into growing consideration the contextual factor and the need for total reward systems to be aligned with an organization culture and overall strategy, can actually lead to the final conclusion that total reward can be indeed considered as an additional model of HRM.
Regardless of the way total rewards systems are graphically represented, these models definitely encapsulate all of the typical HRM models features and components. Despite these do not establish and outline a clear cause-effect relationship between the employers initiatives and their intended objectives, it can be anyhow posited that total reward models can be actually considered as HRM models on their own. What essentially differentiates them from the others is the role played in total reward models by financial rewards, which is clearly more relevant, or rather, more evident than that played in the other HRM models.
There is indeed a specific and well justified reason for total reward models not showing a specific correlation amongst the several components forming them, which is consistent and coherent with the underpinning assumptions of all of these models. Individuals are different one another and have different wants, which are also subject to change over time so that it would be virtually impossible to draw a model equally valid for and applicable to everybody. All of the components and elements are there, but they need to be used and mixed accordingly. Total reward models can ultimately be considered as flexible, bespoke and tailored HRM solutions capable to fit each employee wants and expectations and adapt to these and to the ever-changing content of the individual psychological contract.
In order to gain full HRM model status total reward systems need to be craftily designed and developed and, most importantly, need to include a relevant number of elements for each of their components enabling employers to achieve their intended objectives by means of the multiplicative, synergetic bundle effect. This also depends on the complexity of an organization and on the composition and variety of its employee population. Organizations characterized by a rather homogeneous generational population or by the presence of people having the same wants at large might find it relatively easier developing less complex and less sophisticated but not by reason of that less effective total reward systems. It clearly depends on the circumstances.
As invariably happens with practices, strategies and policies at large implementation is of paramount importance. Even state-of-the-art total rewards models on paper can miserably fail whether not properly, consistently and effectively executed in practice. Extra care must be hence paid by employers to this crucial activity.
The overall process, from design to execution, could reveal to be particularly demanding and resource-consuming, but it should not be overlooked the circumstance that the stake is well-worth the efforts and resources it requires.
It is very likely that the ever- and fast-changing exogenous context, which is sorely influenced by the global economic and financial conditions, will increasingly push employers to come up with more flexible and effectual total rewards model where, differently from the past, the word reward is destined to be growingly associated with diverse meanings. In order to keep the pace, organizations need to pay extra care to this aspect and constantly investigate and study the exogenous and endogenous environments in order to timely come up with new, suitable, innovative and forward-looking solutions.
 Longo, R., (2012), Total Reward as a HRM model, HR Professionals, Milan [online].