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Total Rewards

What is a Total Rewards Approach?

• Going beyond the view that compensation only comprises base, bonus, equity and intentionally designing an overall rewarding experience for employees that encompasses all the seen and the unseen.
• Similar to employee experience, which is an all encompassing approach to driving talent engagement, a total rewards approach includes all touch points with an employee that can be offered or designed as a reward.
• Expanding the definition of a rewarding approach to include connection with the vision of the company, leadership depth, employer value proposition along with the essentials of employee compensation i.e. base compensation, variable incentives, short term or long term incentives, equity ownership, benefits, perquisites and future planning tools

Why a Total Rewards Approach?

• To offer a complete and comprehensive view on compensation rather than focus solely on cash compensation and/or other more near term tools
• To expand the employee view on rewards and include components of leadership, company vision, career growth along with all long term and short term incentive plans that make up employee rewards
• To offer flexibility while making meaningful trade offs between cash, equity and other compensation channels during hiring, promotions, rewarding decisions

How to get started with a Total Rewards Approach?

To get started with a Total Rewards approach, the intention has to be set at the executive leadership level – the team has to feel a real need to start this journey.

The need is fairly simple – cash or equity compensation is just not enough. To rely solely on these two methods of paying out an employee is a finite approach towards rewarding as from day 1 both these tools are finite, they will eventually have their constraints.

Additionally it is important to establish the basic 101 on how can an employee receive rewards early on – setting expectations that go beyond cash and equity from the beginning will help get ahead of situations such as (1) over reliance on base compensation increases to feel rewarded through compensation progression (2) expectation squarely on short term variable compensation tools such as bonus to be rewarded for near term impact (3) expand the employee view when they ask the question “What’s in it for me?”. The returns that an employee receives in the form of compensation should be on a broad spectrum ranging from career growth, leadership connection, inspiring mission, connected team,

Let’s address a few myths that block the path to adopting a total rewards

Myth 1 - the company needs to reach a particular funding stage or an employee headcount size to be eligible for adopting a total rewards approach.

Reality - total rewards approach to overall employee compensation is a way of thinking and a narrative on how incentives and rewards are designed as well as conveyed to employees. The tactical or operational components of this approach is minimal as very simply it’s a new habit that we are developing

Myth 2 - it’s very complex to design relevant tools or templates that capture total rewards intent or principles

Reality - total rewards approach is an organizational habit that requires light homework to implement and operationalize.

Myth 3 - total rewards approach is only for big companies as it requires SMEs to focus on specific components that small to midsize companies cannot afford.

Reality - a company can adopt the Total Rewards approach as early as two employees and scale meaningfully thereafter

Total Rewards Philosophy

• A sample Total Rewards Philosophy statement would be designed something like this
  • “We at Company A are currently paying base compensation salaries in the percentile range > 25th and < 75th percentile across the company.
    • Our technical functions are paid at >50th percentile and <75th percentile on base compensation.
    • Our non-technical functions are paid at around 50th percentile.
  • We at Company A are currently paying equity compensation in the percentile range <50th percentile across the company.
  • We at Company A have benchmarked our benefits to be at 75th percentile of our comparative peer group
  • If we combine all Total Rewards Components, overall as a company our intent is to be ahead of our peer group and through internal and external benchmarking efforts our overall Total Rewards are at >50th percentile

How to arrive at the Total Rewards Philosophy?

• Conduct analysis of current cash compensation data points to form an opinion on the current percentile ranges.
  • Eg if we compare the current base salary data points of all Engineering team with market data, which percentile does the majority of the team fall under?
  • Eg 75% of the employees are currently being paid at >50th percentile and <90th percentile
  • This will lead to the conclusion regarding which percentile is the majority of the Engineering team being paid at
• Align with functional stakeholders of each function (typically executive team members) on the data findings, gaps and forward looking principles
• Depending on the maturity and psychological safety within the leadership (or executive) team, present the findings to align on overall company philosophy
• Depending on existence of compensation committee including board members/stakeholders involve them in the alignment process
• Present an aspirational view if there are significant gaps from current data findings and where the organization wants to be on total rewards
  • This view will need to be supported by financial modeling of investment required (cash compensation, equity options, other LT or ST incentive planning tools)
• Drive alignment on the principles to be considered the True North while anchoring Total Rewards decisions

What’s next?

• In an ideal state of creating a “no-surprise” culture, the Total Rewards Philosophy/principles should be cascaded to the next level of leadership to serve as an anchor for taking decision on compensation throughout the employee life cycle ( during milestone moments such as hiring, promotion, retention, restructuring amongst others)
• Depending on the readiness of the organization (trust, transparency, robustness of frameworks such as leveling and reviews) the Total Rewards philosophy could be shared with all employees to foster known behaviors
• In a more practical state, the Total Rewards philosophy is a shared content between the leadership team, finance and People (HR) function serving as an anchor for credible decision making

Total Rewards

Before the data research, framework building comes approaching total rewards as a mindset (cash is not total rewards, managers are not the only influencing factor in determining financial rewards, structure supports equitable and scalability)

• Foundation
  • Total Rewards Philosophy
    • Target percentiles for cash and equity compensation along with benefits strategy
  • Employee leveling
    • Identified employee leveling philosophy for structured job architecture
  • Market pay vs performance-based pay
    • This is an important discussion to be had within the executive team with alignment between CEO, CFO, and CPO on balancing out market-based adjustments and performance-based rewards.
• Budget principles
  • Alignment between CEO, CFO, and CPO is critical for designing a top-down budget approach vs. a balance between top-down and pool-based spending.
• Leadership discretion in budgeting
  • Assess the organization's readiness for allowing functional leaders to determine budget spending for talent needs
• Cash compensation decisions
  • Clear principles to be defined for allocating bonus pool and determining base salary increases.
  • At the leadership level, it’s important to align on how algorithm-driven the decision should be vs. involving leadership discretion.
• Tools
  • Salary bands
  • Benchmark data

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