Feature Article - September/October 2010

The Perfect Package

How Incentives Fit in the Total Reward Mix

By Rick Dandes

Organizations have long faced the challenge of attracting, motivating and retaining their key employees. This is particularly true in difficult economic times, when organizations must aggressively pursue talent to increase productivity and profitability, leveraging human capital to maintain a competitive advantage.

For this reason, many highly successful companies have turned to the innovative use of fully integrated total reward programs as a core business strategy.

"In other words, for many employees and their relationship to an organization, it's no longer just about the paycheck. It's become much more than that," said Sue Holloway, CCP, associate director, professional development, for Scottsdale, Ariz.-based World at Work, a not-for-profit professional association dedicated to knowledge leadership in compensation, benefits and total rewards.

For years, executives, managers and sales professionals—along with their human resource and business line support partners—have relied on incentive compensation and sales commissions as the primary tools to recognize and reward success. In today's economic climate, however, some professionals will not enjoy large gains in pay for performance compensation as occurred in previous years. With the escalating cost of living whittling away pay increases, a cash incentive plan can quickly lose its desired motivational impact.

That's why total reward programs are gaining in importance, Holloway said. The concept is simple: An organization has many tools for employee reward and recognition. It's no longer all about base pay, bonuses and benefits.

"I guess, in a nutshell," Holloway continued, "the concept of a total rewards program refers to the deliberate integration of compensation, benefits, work rights, career development and recognition to attract, motivate and retain talent. It is a program where all of those five reward elements are bundled together, creating a deal between employee and employer."

Tom Davenport, a senior consultant at Towers Watson, a global professional services company based in New York City, agreed with Holloway. "When our company uses the term total rewards," he explained, "we're thinking about all the things that people receive from an organization or manager—whether that is financial or non-financial, tangible or intangible—that represent compensation for the energy they put into their work.

"We sometimes define it as broadly as pay and benefits," he continued. "Learning and development goes in there, work environment elements, work flexibility—even elements of managerial behavior and executive communication. Everything you value on some level from your organization and your manager falls into the category of total rewards."

The importance of promoting total rewards and benefits to employees means that everyone gains a larger picture of the cash-value equivalent and cultural value they get by staying with the employer, thus creating a more engaged and committed workforce.