Total rewards strategy is a business mission statement used to develop and implement compensation and benefit programs that attract, motivate and retain employees.  HR assists this process by working with ownership and senior management so that the total package offered to employees is analyzed to determine what combination of compensation and benefits will best help the company achieve its hiring and retention objectives.  Without a Total Rewards (TR) strategy, small businesses often develop a knee jerk approach to recruiting and hiring each employee, which does not built a long term structure for meeting business goals and objectives.

Developing a compensation strategy involves balancing the internal conditions (willingness and ability of the company to pay) and external conditions (whether the company will be leading, meeting or lagging the market rates for positions).  Part of the TR philosophy is how the company culture combines with the types of products and services offered by the company.  By reviewing compensation data at a company, you can see how the company values the position.  Organizations identify jobs that are most valuable to their organization (for instance sales or technology developers) in order to achieve their goals and objectives.  The TR philosophy is used to help differentiate between the value of different positions/roles, and developing effective reward programs to support the most valued positions.  For example, an organization with only a modest sum to devote to bonuses, may choose to build a bonus program around the few most valuable positions at the company, and not include those positions that have less impact on the company’s success (whether due to skills, knowledge, etc..).

Another important aspect on compensation is the company culture.  What are the values and beliefs of your owner, or CEO, and how does compensation reinforce the culture.  One major point to consider is whether to compensate on a merit or performance philosophy, or on a seniority or entitlement philosophy.  Performance based cultures are constantly trying to align compensation practices, including incentive programs, to reward behaviors that move the company closer to achieving its goals and objectives.  Employees need to be informed about how their performance impacts company objectives so they can associate behavior, results and then rewards.  High performance cultures are created.

A seniority philosophy rewards longevity and length of service.  Performance, while important, may be secondary to longevity at the company and loyalty.  Rewarding length of service creates loyalty.  Many benefit programs address length of service, such as vacation plans that provide more vacation to employees with longer service.  Every company will have a balance of rewards that recognize both performance and seniority philosophies – but starting with a Total Rewards philosophy helps create a vision of building a compensation strategy.

Areas to consider include budgets for: salary/wage structure, merit pay and incentives, bonuses, employee benefit plans, insured plan offering and employer contribution rates, and other unique reward offerings.