Distinguishing total rewards from total compensation

The terms “total rewards” and “total compensation” are sometimes mixed up, but they are not the same. They have significant differences, even though they share some similarities.

So, what makes total rewards different from total compensation? Find it out here.

What Is Total Compensation?

To put it simply, total compensation is what you receive for your work. For many people, it is the money you get in your paycheck every month. But it is more than just that. Total compensation includes other things as well such as bonuses or commissions, and other benefits.

Everything you get in return for working at a place makes up your total compensation. Aside from the base pay, it also includes the benefits and extras to which you are entitled to receive.

Compensation usually covers the following:

• Base salary: The minimum pays an employee receives. It is a fixed amount and does not change based on performance.
• Bonuses or commissions: These extras known as additional payments or variable compensation are often based on how well employees perform.
• Stocks and shares: A form of compensation where companies give their employees a stake in the business by allowing them to buy shares and stocks.
• Health and life insurance: These benefits cover employees’ health and financial protection plans in case of unexpected events.
• Retirement plans: These plans help employees save for retirement through contributions matched by the company.
• Other perks: These can include discounts, internet subsidies, phone services, or even transportation.

What is included in your total compensation can vary and depends on the type and size of your company.

While compensation gives employees a basic idea of what their job is worth, it does not cover everything. There are other benefits as well that they can get by being part of the company.

Employees find compensation a crucial thing to consider when choosing where to work as it gives them a starting point to understand what they can get in return for their efforts.

This makes compensation so important to employees, but total rewards take it a step further.

What Is Total Rewards?

Total rewards go beyond just compensation. They include everything employees get- base pay, bonuses, and more additional monetary and non-monetary benefits.

Here is a breakdown of what is typically included in total rewards:

• Compensation: The money employees earn for the work they do. It helps them figure out whether a job is good for them and compare it with what other companies pay.
• Benefits: These are extras they get, like insurance and discounts.
• Work-Life Benefits: These are less tangible but equally important. They include time off and flexible hours, which help employees balance work and personal life.
• Performance Recognition: It is important to extend appreciation for the work your employees do. Recognizing their efforts boosts motivation and keeps them engaged.
• Career Development: Nobody wants to be stuck in the same job forever. Career development opportunities help your employees grow and advance in their career.

Total rewards make a job more than just a paycheck – they make it rewarding in many ways.

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Best Practices for Employee Total Rewards

Thinking about introducing total rewards at your company? Here are key things to consider when creating a total rewards plan and yearly statements.

Understand What Your Employees Want

Look at your compensation and benefits together. This helps you plan better for the future and find any gaps in what you offer now. Since you are designing rewards for your employees, it is important to ask them regularly about what they need.

Not sure how to ask? Here are some questions you can include in your next survey:

• Are you happy with our time off policy?
• How well do you understand the opportunities for growth here?
• Is our healthcare plan meeting your needs?
• Do you know about all the benefits we offer?
• Do you see yourself growing in this company?

Be Honest About Value

When showing employees their total rewards, do not exaggerate the value of non-monetary benefits. For example, unlimited time off is great, but it does not have a $50,000 value. Be transparent about the actual costs and benefits of each program.

Communicate Clearly

Once you have calculated everyone's total rewards, share the information with them. Some companies use software to send digital statements, while others give out physical copies. Make sure employees know where to find their report and encourage them to review it.

Most companies share total rewards yearly, often tying it to performance reviews or the fiscal year end. You can have managers bring hard copies to reviews or send out digital updates each year.

Organize Your Statements

Splitting rewards into categories makes them easier to understand and helps identify any gaps. Common categories include compensation, benefits, work-life balance, recognition, and career development. But you can use whatever categories make sense for your business and your employees.

Advantages of Calculating Employee Total Rewards

Understanding your employee's total rewards goes beyond just looking at pay and benefits. It can also help your HR team keep employees happy, motivated, and stick around.

Here are reasons why it matters:

Attracts the Best People

Sharing total rewards info attracts top talent. Prospective employees want to know what they will get beyond just their salary. Studies show many people prioritize work-life balance and flexibility over higher pay. Being upfront about these benefits can make your company more appealing to job seekers.

Keeps Your Team Happy

Total rewards programs help keep your current employees happy too. Knowing about all the benefits a company offers helps employees stick around more. Research shows that low pay, inflexible hours, and poor benefits are common reasons why people leave their jobs. By educating your team about what they get, you can build loyalty and keep them on board longer.

Keep Employees Engaged

Sharing personalized total rewards statements with employees helps them see the full picture of what they get from working for your company. It shows them that you value their contributions and care about their well-being. Tying bonuses to performance can also boost engagement, as it encourages employees to meet goals and feel recognized for their hard work.

When employees feel valued and understand how they contribute to the company's success, they are more likely to stay engaged and motivated.

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Many people focus on the money they earn when they think about their job. But here are additional aspects to consider beyond just that as well. The total rewards system is what really decides whether someone is happy with their job.

Creating a pay package is easy, but making sure employees understand all the rewards they get from their job is harder.