Total Rewards

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What are total rewards?

Total rewards refer to the comprehensive compensation package offered by an employer to its employees. It is a holistic approach to employee compensation that goes beyond traditional salary and benefits and includes how employees are rewarded for their work.

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Image showing the meaning of total rewards

Total rewards are designed to meet the needs of both the employer and the employee. It helps employers attract and retain talented employees and can improve employee satisfaction, motivation, and productivity. For employees, total rewards can provide financial security and stability, opportunities for career advancement, and a sense of belonging and engagement in the organization.

Key components of total rewards:

The key components of Total Rewards include: HBR’s total rewards strategy research

  1. Base salary or wages: This is the foundation of an employee’s compensation package and is typically based on factors such as an employee’s job level, experience, and qualifications.
  2. Benefits: This includes traditional benefits such as health insurance, retirement plans, and paid time off, as well as newer benefits like flexible working arrangements, on-site childcare, and tuition reimbursement.
  3. Incentives and bonuses include performance-based rewards such as bonuses, profit sharing, and stock options that can help employees achieve their financial goals.
  4. Professional development includes opportunities for employees to improve their skills and advance their careers through training, mentoring, and other professional development programs.
  5. Work-life balance: This includes initiatives such as flexible working arrangements, telecommuting options, and other programs that help employees balance their work and personal responsibilities.
  6. Recognition and rewards: This includes non-monetary tips such as recognition programs, employee engagement initiatives, and other forms of appreciation.

What are the benefits of a total rewards package for employees?

The benefits of a total rewards package for employees include the following: SHRM’s total rewards framework guidance

  1. Financial security: Total rewards packages typically include a competitive base salary or wages and incentives and bonuses that can help employees achieve their financial goals.
  2. Comprehensive benefits: Total rewards packages typically include a wide range of benefits such as health insurance, retirement plans, paid time off, and other benefits that can improve employees’ overall well-being.
  3. Professional development: Total rewards packages often include opportunities for employees to improve their skills and advance their careers through training, mentoring, and other professional development programs.
  4. Work-life balance: Total rewards packages can include initiatives such as flexible working arrangements, telecommuting options, and other programs that help employees balance their work and personal responsibilities.
  5. Recognition and rewards: Total rewards packages can include non-monetary rewards such as recognition programs, employee engagement initiatives, and other forms of appreciation that can make employees feel valued and motivated.
  6. Perks and amenities: Total rewards packages can include company-provided transportation, an on-site gym, and other amenities that can improve employee satisfaction and overall well-being.
  7. Job security: Total rewards packages can include measures such as job stability, opportunities for growth and advancement, and the potential for long-term employment, which can provide employees with a sense of security and stability.
  8. Clear communication and transparency: Total rewards packages can include clear communication of the package and the process and criteria used to determine it, which can help employees understand and appreciate the value of the package.

A compelling total rewards strategy is the most powerful differentiator for attracting and retaining top talent in competitive markets. Organizations using pre-employment assessments ensure every hire is grounded in verified skills. A data-driven hiring plan reduces mis-hire risk, while strong talent acquisition practices focused on skills-based hiring help organizations attract and retain top talent.

Frequently asked questions

A total rewards strategy defines the complete set of monetary and non-monetary offerings an employer provides in exchange for employee contribution : including compensation, benefits, work-life flexibility, career development, recognition, and organizational culture. It goes beyond pay and benefits to encompass everything an employee values about working for the organization.

SHRM’s total rewards framework identifies five components: (1) Compensation : base pay, variable pay, equity; (2) Benefits : health, retirement, insurance, leave; (3) Well-being : physical, mental, financial, social well-being programs; (4) Development : career pathways, learning opportunities, mentoring; (5) Recognition : formal and informal programs that acknowledge contributions. Some frameworks also include Work-Life as a sixth component.

Total compensation focuses on quantifiable monetary value : salary, bonuses, benefits cost. Total rewards is broader : it includes elements that employees value but that cannot easily be expressed in dollars: flexible work, meaningful work, career growth, culture, recognition, and manager quality. In an era where employees increasingly prioritize non-financial factors, total rewards provides a more complete retention and attraction framework.

Design process: (1) Understand what your target talent segments value most through surveys and focus groups; (2) Audit current offerings against those priorities; (3) Benchmark against competitors for the talent you compete for; (4) Identify gaps between what employees value, what you offer, and what competitors offer; (5) Prioritize investments in the highest-value, highest-gap areas; (6) Communicate the full package effectively to maximize perceived value.

Research consistently shows that employees underestimate the value of their total rewards : particularly non-cash benefits. Organizations that invest in rich total rewards but fail to communicate them effectively lose the retention and recruitment benefit of those investments. Annual total rewards statements, onboarding communication that walks through the full package, and manager training on discussing total rewards all improve perceived value.

Flexible work arrangements have become one of the highest-valued total rewards components : particularly since 2020. Research shows flexibility ranks above additional cash for many employees when choosing between employers. HR teams should design flexibility into total rewards intentionally: remote/hybrid options, flexible hours, compressed workweeks, sabbaticals, and flexible PTO policies. Flexibility often delivers high retention ROI at low marginal cost.