I. Understanding Total Compensation

Gone are the days where compensation practice was based largely on formulas and salary structures which were rigid and highly controlled – and where benefit programs were designed as a one size fits all work force needs.

The more progressive employers started that evolution to a total compensation philosophy in the late seventies. This was largely in part due to the increasing pressures to gain a competitive edge.

Organizations at the time were responding to:

• Increasing competitive business climate
• Spiraling benefit costs
• A focus on employee benefit regulation
• Diversity in the workplace
• Emergence of multi-nationals

In this era of full employment, it is evident that the quest for talented workers involves much more than strategically designed compensation and benefit programs. Successful organizations go beyond compensation and benefits and look at all factors, which influence attraction, retention and motivation.

The factors, which influence recruitment and retention, are:

• Competitive compensation
• Progressive employee benefits programs
• The overall work – life experience

Successful employers are those who articulate:

• Clear job expectations – they follow through on their promises
• Clear lines of responsibility and accountability – they promptly address employee’s concerns.
• Family friendly policies – a meaningful balance between professional and personal lives of their employees.
• Opportunities for professional growth – new responsibilities are provided with guidance, training and support.
• Meaningful feedback – employee appreciation and recognition is a key element of their operations.
• Competitive compensation – offer a total rewards system which can be tailored to one’s own specific needs.

Although compensation and benefits have long been recognized as the core components of total compensation the overall work-life experience has emerged as a critical component. Even though it has always existed in organizations, the experience has often not received the attention as an “equal” component. Recent research consistently demonstrates that employees place high value on matters related to the work-life experience.

The five key components of work-life experience are:

• Acknowledgment, appreciation and feedback – such as service, spot and achievement rewards, feedback and other initiatives, which offer fulfillment.
• Balance of work/life – such as family programs, financial counseling, convenience services, employee recreational activities, flexible work arrangements.
• Culture – such as leadership, diversity, organizational formality, promoting innovative thinking and open and honest employee communications.
• Development – such as learning opportunities, coaching, mentoring, feedback opportunities for education and career advancement.
• Environment – such as the job (content, variety, context, tools, clear line of sight).

Each of these components contribute to the reason employees want to work for your organization.

Offering any of the components at the exclusion of the others could adversely impact the organizations’ success. If the organization for example, places the majority of emphasis on cash compensation, at the expense of the other components, it would have a negative effect on those workers who place value on flexible working arrangements. Or, too much emphasis on the work experience elements might lessen the impact of total compensation expenditures for a large segment of the workforce. The key to gaining the needed competitive edge is to strike an appropriate balance with all the components that are involved in your total compensation model. i.e. components not competing but rather complementing one another.

Steps in developing a total compensation program ought to include the following:

1. Identify any external and internal influences, which may be unique to your company.
2. Weigh the importance of each of the components to the influences, which you identify in the first phase.
3. Review the preliminary model to what you currently have in place.
4. Solicit feedback through employee forums regarding the relative importance of the components specific to their individual needs.
5. Create a total compensation program, which most effectively creates a culture and climate of behaviors necessary to achieve the organizations’ business strategy.

II. Developing a Recruitment/Retention Strategy

Total compensation consists of those things that employee’s value in the employment relationship. In developing a recruitment and retention strategy designed to make your organization an “employer of choice” your rewards program should consist of:

“Transactional Rewards”

• Pay:
  Base pay, variable or at risk pay, stock plans and employee recognition programs.

• Benefits:
  Healthcare and welfare programs, income replacement plans, retirement and savings plans and pay for time not worked.

“Relationship Rewards”

• Training and Development:
  Career development training; performance management and coaching and mentoring programs.

• Work-Life Programs:
  Work/life balance, performance support, and relationship with co-workers.

It is often argued that it is the pay component that provides the strongest incentive to recruit and retain talented workers. Pay by itself however, can’t sustain a motivated workforce.

There is growing recognition that a competitive employee benefits program is needed to be successful in recruiting and retaining a talented workforce. As benefits are generally not performance based, there is a movement toward increased cost sharing, redesign of the benefit mix and a reduction in total employer paid benefit programs. This reshuffling of the total rewards budget is intended to create opportunities for an increase in variable pay programs and for providing increased opportunities for learning and development.

Many organizations struggle with how much of the total compensation budget should be allocated to training and development. It is often difficult to benchmark against peer organizations for appropriate degree of competitiveness. Unlike pay and benefits where organizations typically know what they want their competitive position to be, these same organizations struggle with this area as to what kind and for whom the opportunities ought to exist. As a result, this component often is under funded and used only in response to situations created by pressing business needs.

Work-life Programs are the least developed component. Often as a result of different communications and leadership styles of managers within an organization, these programs, if they even exist, are splintered and reside within certain areas of the organization where these leadership traits embrace the concept of work-life balance.

With unemployment at record lows many organizations are faced with critical key staffing shortages.

Those organizations, which have attempted to address the crisis with a single component approach, have made no inroads. The classic initial solution to the recruitment retention dilemma is to throw money at the compensation (pay) program. The problem, of course, is that many organizations are addressing the crisis in this manner so little if anything is gained in the way of competitive advantage. It is the rare recruitment and retention problem that can be solved by pay alone. Without the recognition that work-life and benefits contribute significantly to retention, the organizations’ challenge of recruitment and retention will remain.

There is of course no boilerplate approach which organizations can use to develop a recruitment and retention program, as both the company and the organization has its’ own unique needs. In addressing these needs consider the following key design features:

• Identify Critical Employees: Identify employees who are important to the success of the business and who’s continued employment is at risk. Top performers, thought leaders, magnet employees, employees working on critical projects, those with scarce or highly marketable skills.
  
• Set Conditions for Bonuses: It is important to protect the company’s investment but without creating barriers to participation. Rewards can be as simple as staying with the company tied to specific performance objectives.
  
• Determine Appropriate Payout Levels: Determine the potential impact on the company should the employee leave. The greater the impact, the higher the retention reward should be. Keep in mind that money is not the only motivator. Dollars can be offset by opportunities for meaningful work, future earnings potential and other types of recognition.
  
• Establish Qualifiers or Modifiers: Retaining employees through a specific date may be important i.e. Y2K conversions, new product development or employees of a newly acquired company. Caution should be used in design of qualifiers so as to not inhibit desired performance.
  
• Determine the Impact on Other Programs: If an employee already participates in special incentive plans or receives annual merit reviews substituting retention programs for performance programs may cause employee resentment.

Identify other options:

• Providing flexible work hours.
• Using special projects to motivate employees.
• Reassigning employees to meaningful, rewarding assignments.
• Creating mentoring programs.
• Supporting training that contributes to employees’ ability to add value to the company.
• Increasing salaries so that they are at or above market level or accelerating increases to base pay.

There are many reasons why employees join and remain with companies. If you are not sure what it will take, try asking them. Soliciting feedback will not only help in the design but will demonstrate that you care what they say and how they feel.

III. Communicating Your Total Compensation Program

To truly appreciate their organizations’ investment in the workforce, employees need to clearly understand the company’s total compensation system. Offering programs in a vacuum without the support of a well orchestrated communications strategy is the main cause for the employees sense that they are underpaid or that other competing organizations have more “rich” employeebenefit programs. These value judgments by and large are based on hearsay and less than factual comparisons.

Once employees understand the overall strategy and the organizations’ goals, they will be more apt to embrace and be comfortable with their total compensation package.

The communication must take form beyond a general understanding of the programs.

For example, if the employees become ill:

• What expense will be covered?
• What Doctor can they use?
• How much paid time off is available?

Technology provides tools for effectively communicating reward programs to employees:

• Voice Response Systems
• Web sites

Easy access and user friendly technology will go a long way in making the benefits experience a positive one. Unlike developing hard copy communication, there should be more emphasis on charts, graphs, pictures and concise text.

Employees also need to understand the specifics of other human resource related programs. Communicating contact information and publicizing sources and locations where employees can get answers is important.

The communication plan should include a process that gets a consistent and continuous stream f information to employees. One of the biggest shortcomings is the single “rifle shot” approach where organizations communicate a new program and then move on to the next task at hand. Not taking the time to make sure employees got the message will certainly hamper effective communication. Employees are now faced with information overload and the message has to be continuously reinforced through various media. Organizations need to test for employee understanding and appreciation to ensure the message is getting through. This can be accomplished through surveys and employee focus groups.

There is no single benchmark on how much to spend on communication. Communication expenditures are an investment, which ensures value for dollars spent on the total compensationprogram.

The process of communicating should be continuous, starting with the candidate interview process, when making an offer of employment and of course, reinforcing the message during the employees’ tenure with your organization.

IV. Why Your Company Needs Tailored Employee Benefit Statements

Negative publicity and employee complaints about benefit plans are not unusual and often stem from a lack of understanding about the employer provided program. Employers, who once viewed benefit statements as unnecessary and expensive, are now taking a second look. As an integral part of an overall communications campaign, benefit statements provide employees with the “What’s in it of me?” information that promotes deeper understanding and appreciation of a company’s benefits programs.

Personalized benefit statements help improve employee relations and plan acceptance by:

• Creating awareness and understanding of the company’s employee benefits programs.
• Communicating the cost and value of the program; and
• Minimizing the negative feelings that often result from changing benefit plans.

Although employees know that their employer pays most or all of the cost of certain benefits, benefit statements attach a dollar value to those employer paid items. At the very least, communicating these costs as a percentage of pay can make employees aware that the current employer provided program is expensive.

When you as an employer are forced to change a benefits program, the employee’s usual response is negative. Benefit statements can be used to provide a clear picture of why the change is being instituted. Not surprisingly, when employees who are unaware of the cost of their health care plan are told they will have to pay more for medical benefits, they express dissatisfaction with their plan. And, while informed employees will never welcome paying more, they are more likely to accept the need for such changes when the cost of the overall health plan has been clearly defined.

Only a company’s imagination, creativity and budget limit the design and scope of a benefit statement. Depending upon content and purpose the statement can range from a simple one-page piece to a glossy booklet.

Benefit statements have always been a popular form of employee communication, but recent advancements in technology have made them more affordable. Now those employees are taking on more responsibility for selecting their own benefits, personalized statements have become even more important both to the employee and the company.

On-line benefit and compensation communication provides employees with more up-to-date information than is available with paper based statements. Employees may use on-line forms to enroll in plans, look up medical providers, complete employee surveys or read and print Summary Plan Descriptions etc.

Employees may perform “What if “ calculations to see what effect their participation in the company 401(k) or cafeteria plan would have on their after-tax take-home pay. Links to other web sites such as the Social Security Administration enables employees to request a copy of their Personal Earnings and Benefit Estimate Statement on-line.

Having all these forms, documents and reference materials in one place offers the employees and their employers greater accuracy, convenience, efficiency and cost savings. Employees will enjoy substantial savings in printing and distribution costs by making all of these forms and information available on-line. When updated frequently, on-line benefit statements more accurately reflect the current status of employees’ benefits. This allows an employee to see the impact of changes in compensation or benefits as they occur instead of waiting up to a year or more to see them.

On-going communications with your employees if done effectively will take great strides in distinguishing you from others and help you become an "employer of choice".

Gary R. Thornton, MBA, SPHR, CEBS, RPA, GBA is the Principal of Thornton & Associates, a human resources management consulting firm located in Scarborough, ME. He has more than 25 years’ experience in human resource management for both private and nonprofit organizations. He holds credentials as a Senior Professional in Human Resources (SPHR), Certified Employee Benefits Specialist (CEBS), Retirement Plan Associate (RPA) and Group Benefit Associate (GBA). He currently serves as a Special Expertise Panel Member - Total Rewards, Compensation & Benefits for the Society for Human Resource Management (SHRM). He has also held leadership roles in the Maine Employee Benefits Council and the Human Resources Association of Southern Maine. For more information about the information contained in this article, you may contact him at 207-885-9333 or email gthorn@ThorntonAndAssociates.net