Chapter 8. Total Rewards Management

Robert L. Heneman

Wendy K. Schutt

During the 20th century, a significant body of knowledge regarding reward systems was developed. Basic principles were established, such as the need to link pay to performance to increase productivity.^[1] Research was conducted that clearly showed the positive impact of reward systems on employee and organizational performance.^[2] New forms of reward systems such as variable and skill-based pay were created.^[3] The importance of linking reward systems to business strategy to align the interests of employees and owners was emphasized.^[4]

Much of this progress took place during unstable business periods such as the turmoil of World War I and II and the Great Depression. For example, many job evaluation methods that are currently used by employers (e.g., the Hay system) were developed during or shortly after World War II.^[5]

Turmoil is also likely to exist in the 21st century and this turmoil is likely to further hasten advances in reward systems. The current turmoil faced by employers is the rapidly changing nature of work. Elements of this change include changes in the nature of the employment relationship from permanent to contingent employment, changes in technology that have made it easier for organizations to monitor vast amounts of data about employee and organizational performance, changes in organizational structures from bureaucracies to virtual organizations, and changes in the design of jobs from strict to loose role definitions for employees to follow.^[6]

The purpose of this chapter is to propose some fundamental issues that need to be addressed by executives in order for basic reward principles developed in the 20th century to be successfully applied to the rapidly changing workplace of the 21st century. More important, the issues addressed in this chapter need to be considered if further progress is to be made at developing new principles of compensation applicable to organizations in the 21st century. Issues to be explored in this chapter include the following: moving from compensation to total rewards, focusing on execution as well as strategy, integrating reward systems with organizational learning systems, revisiting the concept of equity, public sector rewards design, and extending innovative reward systems to new business environments. These topics will be covered in turn.