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Writer's pictureNua Team

Five questions HR leaders should ask to design a stellar total rewards strategy

Updated: May 10, 2019



You would never invest in an acquisition, capital equipment or any other business need without a clear idea of how much to pay for it and how to gauge the return on that investment. Yet many companies do just that when it comes to their most important and costly, asset — their people. How else can you explain the enormous number of companies that aim for the middle or median (up to 85% of companies, according to SHRM, match the market median for base pay)? The same happens when executives design total reward strategies: They often offer same perks and benefits that their competitors do, neither lagging the market nor standing out.


Why a median total rewards strategy is hurting your company


A fundamental part of the overall business strategy — that being a total rewards strategy — when designed and implemented correctly, will make a positive impact on your business’s bottom line. When you target all rewards to the same level, you are missing out on opportunities to customize your reward programs to maximize their effectiveness and value to employees. In fact, a median total rewards strategy is hurting your business by turning away the right people.


Taking a bolder and smarter approach to rewards


Rather than setting all rewards at the same level or letting the market and peers decide how you reward your people, define these investments for yourself. Aligning rewards with strategic goals and priorities means investing money in reward programs where it is most needed and in ways that will have the most impact. Say you’re a health care company: You want your health benefits to be the centerpiece of your rewards strategy. As such, start by offering your employees the best-in-class health care plan.


But don’t simply go for the obvious elements. Challenge your own thinking and don’t be afraid to take a bold approach. Ask yourself these important questions to begin designing a total rewards strategy that will take your business to a new level.


1. What are you trying to achieve and what kind of workforce do you need to do that?


Is your workforce aligned with your strategic goals and priorities? You may think the obvious answer is yes, but that may not be the reality. Take a hard look at your current workforce and who you are targeting with recruitment. Do those people have the skills, knowledge and potential necessary to take the company where it needs to go? Is the company successfully recruiting the talent it is targeting? Only with a clear understanding of the types of people the company needs now and in the future will you be able to develop the right type and level of rewards for that workforce.


2. What do the people you want to attract and retain value most?


Identify opportunities to segment the employee population for different types of rewards based on what they care about most. It could be individual growth, employee preference and motivation, role, location and so on.


For example, you might leverage this approach to offer new or different rewards to stars and high potential employees, while also eliminating or minimizing elements of rewards that are unnecessary, underutilized and undervalued by everyone. By maximizing flexibility, it is possible to vary the positioning for specific elements of rewards while still keeping the overall rewards program at the median (if that is your goal).


3. What do you need to offer to become an employer of choice for the best talent?


For this approach to work, you need to think broadly about rewards. Base pay is certainly a key component of this, but the positioning of incentives, equity, benefits, wellness and anything of financial value the company provides are also important.


It is also important to consider the non-financial rewards. For many current and potential employees, work environment and quality of work life are as important as money when making career choices. With sites like Glassdoor making this type of information readily available, you have no choice but to pay attention to this part of the employment relationship by nurturing a supportive work environment and company culture, while also offering real opportunities for personal and professional growth and challenging jobs.


4. Where can you stand out?


Financial services firms are likely to need strong financial rewards, like large base pay and incentive opportunities, fast-track career paths and a generous health plan. Technology firms need to invest heavily in base pay and equity-based rewards for the same reason.


However, many other companies cannot afford and, frankly, don’t need to offer 75th percentile rewards across the board. You need to pick your spots. If you invest in subsidized on-site child care that is very much valued by your employees, you can balance out those investments by reducing what you offer in other types of rewards.


5. How will you manage the trade-offs when emphasizing one element of rewards over another?


Making these choices inevitably requires trade-offs. For example, you can create a little or a lot of variation in compensation based on your overall rewards philosophy. At one end of the spectrum, incentive pool funding and payouts could vary considerably based on specific results, with employees getting a windfall during good times and considerably less or nothing at all during down times. If your company is not comfortable with that approach, you can move closer the other end of spectrum by keeping overall pay levels competitive at all times with a relatively narrow but consistent range for incentive payouts.


It's time to make a change


The ultimate goal for every company is to spend money wisely and optimize the investment for the best business outcome. To succeed, focus on designing and maintaining total rewards programs that are aligned with the unique needs of your business, not with what everyone else is doing. If everyone is chasing the middle, going your own way can help you make a splash and really stand out as an employer of choice in the marketplace.


The time to start is now.



About the author:

Joe Farris is a co-founder at Nua Group, a San Francisco-based Human Resources consulting firm specializing in total rewards. Joe challenges organizations to think beyond the median, focusing on people-related investments that drive meaningful workforce and business outcomes. He helps organizations build great companies through bold and differentiated people strategies.




The article was originally published in Forbes magazine. 





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