Not Understanding Total Rewards Can Negatively Impact Your Efforts to Retain Great Employees.

ITA Group
ITA Group

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“Total Rewards” and “Employee Value Proposition” are two of my favorite HR buzz terms, but they are also terms I hear many non-HR executives misuse or misunderstand. I think part of the confusion stems from the different components in each of these terms, everything from career ladders to flexible spending accounts. The crux of misunderstanding is just not going wide enough with the definition.

1. From the organization’s perspective, the Total Rewards strategy is the combination of tangible and intangible awards offered to the employee.

2. From the individual’s perspective, the Employee Value Proposition is the perceived value of the balance of intrinsic and extrinsic rewards and benefits offered by the organization.

In reality, the employee-employer relationship is no different than any other relationship we have. There are inputs and outputs of that relationship. There must be some balance or the relationship fails. As an employee, you don’t want to have the perception you’re giving more to the organization than you’re receiving and vice versa for the organization.

One source I always rely on for clarity is WorldatWork. They have included five elements in their Total Rewards definition: compensation, benefits, work-life, performance & recognition, and development & career opportunities. I think these are easier to understand than terms like statutory and non-statutory benefits, total remuneration, non-financial rewards, and guaranteed cash. But even these simple terms can cause some confusion.  For example, under “work-life,” you can find adoption reimbursement or health screenings, which may not be top-of-mind when you think about organizational benefits as part of a Total Rewards strategy. 

Increasingly diverse work forces require a new way of looking at the benefits from an employee-employer relationship. Not all individuals will value all elements of the Total Rewards equation equally, and therefore will have a different perception of the Employee Value Proposition. While organizations can have a standard Employee Value Proposition, the individual’s perception of this value proposition will vary greatly based on many life factors (age, gender, education, etc.).  

As human resource and recognition professionals, we should take the opportunity to educate organization leaders on the concepts and ideas behind Total Rewards and Employee Value Proposition to ensure the terms are understood and leveraged correctly. Narrowing or limiting these terms could negatively impact perception and how organizations are tactically using them to attract and retain the best and brightest.

How do you see these terms misused in your organization?