Moving from Compensation to Total Rewards

The portfolio of reward programs used by most managers in the 20th century consisted primarily of compensation (wages, salaries, and incentives) and benefits. The portfolio of compensation and benefits was usually homogeneous for occupational groups and controlled by the human resource management department. This approach worked relatively well with the stable business environments that characterized much of the 20th century.

Radical changes in the nature of work in the 21st century require a shift in the paradigm from two forms of rewards to multiple forms of rewards, from homogeneous rewards to heterogeneous reward programs, and from human resource management control to line manager control. In the absence of this shift to total rewards, it is unlikely that managers will be able to successfully align the interests of employees with the interests of the organization.

In terms of the forms that rewards take, the rewards need to be expanded to include learning opportunities and job design. Learning opportunities are now needed given the changing nature of the employment relationship from permanent employment to contingent employment. Learning opportunities help employees to broaden their skill sets to take on multiple roles in the organization. When roles cease to exist temporarily or permanently, employees are equipped to shift from one role to another role that is still being performed in the organization. Ultimately, when the employee no longer works for a particular organization, learning opportunities help employees develop their human capital so that they are desirable to other employers.

In addition to learning opportunities, job design is another aspect of total reward systems for the 21st century. Dynamic rather than static job assignments can be used as a selling point by the organization to align employee and owner interests. Research has clearly demonstrated that for many, but not all employees, work that is characterized as high in autonomy, feedback from the work itself, skill variety, and work significance are more likely to lead to employees committed to their work. These characteristics of work promote a sense of psychological meaningfulness and are more likely to be present with dynamic rather than static work.^[7]

The mix of base pay, incentives, benefits, learning opportunities, and meaningful work needs to be carefully matched to the finances of the organization and to the needs of employees at various stages in their lives. Flexible or cafeteria-style rewards plans will be needed to match the interests of employees with owners. Employees are much more likely to perform in a manner commensurate with organizational goals when they have input into the mix of rewards they receive.^[8] While the amount of total rewards they receive may remain homogeneous by occupation and performance, the forms in which pay is delivered may be very heterogeneous.

In terms of control over pay decisions, the human resource department of the 21st century will not be able to retain the tight control over pay decisions that they had in the 20th century. Work will be changing so rapidly that line managers—those closest to the changing nature of work—will be the only ones close enough to the changes to be able to make the rapid-fire adjustments in pay that will be required. Certainly, human resource management departments still play a role in setting pay parameters for line managers to follow (e.g., market value), but much more discretion will need to be given to line managers in total reward decisions.^[9]