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What is Total Rewards Strategy? An HR's Guide

10 min read   |  
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Give me enough medals, and I'll win you any war
– Napoleon Bonaparte

A pat on the back goes a long way, and what better way to do that than reward for the job well done? HR teams are constantly looking for the right approach that will have an impact on the organizational culture. And this is where the total rewards strategy comes into play.

But how does such a strategy help, and what do the things revolve around it? We will explore more on it in this blog.

Let's delve in.

Key Takeaways

  1. What is a Total Rewards Strategy
  2. Importance of Total Rewards Strategy
  3. Components of Total Rewards Strategy
  4. Implementing a Total Rewards Strategy
  5. Challenges of a Total Rewards Strategy
  6. Evaluating the Effectiveness of a Total Rewards Strategy

What is a Total Rewards Strategy?

A "Total Rewards Strategy" is a method used by businesses to create and implement a comprehensive compensation and benefits package for its employees. Instead of focusing solely on wages, a total rewards strategy considers the complete bundle of rewards that an employee receives, both tangible and intangible.

A well-crafted Total Rewards Strategy encompasses monetary rewards, such as salaries and bonuses, alongside vital non-monetary elements like recognition, work-life balance, and career development opportunities.

By strategically integrating these elements, organizations can create a compelling value proposition for their employees. This approach not only attracts top talent but also helps improve employee retention, and job performance, contributing to the organization's long-term success.

Importance of Total Rewards Strategy

So why do organizations need a Total Rewards Strategy?

According to Mercer's 2022-2023 Global Talent Trends study, 89% of HR professionals surveyed say improving total rewards is a top priority.

Having a Total Rewards strategy that fits your culture can be a huge game changer. It's a powerful tool that directly impacts employee satisfaction and retention by moving beyond the paychecks.

Some of the key benefits offered to organizations and their employees include -

Improved Employee Satisfaction

Total Rewards packages include competitive salaries, benefits, and non-monetary perks. This holistic approach enhances overall job satisfaction, making employees feel valued and appreciated.

Treat your employees right so they won't use your Internet to look for new jobs.
– Mark Zuckerberg. CEO, Facebook

Enhanced Recruitment

A compelling Total Rewards package can attract top talent to your organization. Candidates are likelier to choose an employer offering a comprehensive rewards package over the ones with limited offerings.

As per Gartner, 95% of HR leaders see the value in integrating rewards with the broader business to increase impact on talent outcomes.

Increased Retention and Engagement

Employees who feel that their contributions are recognized and rewarded appropriately are more likely to stay with the company long-term. This satisfaction extends beyond mere monetary compensation, encompassing benefits, recognition, work-life balance, and opportunities for growth and development.

People want to know they matter and want to be treated as people. That's the new talent contract.
– Pamela Stroko, Vice President, HCM Transformation & Thought Leadership at Oracle Corporation

Better Organizational Performance

Engaged and satisfied employees tend to be more motivated, leading to improved job performance and higher customer satisfaction.

Cost Savings

While Total Rewards involves additional investments with benefits and perks, careful design and management can help HR departments optimize their budget allocation. They can result in cost savings in the long run by reducing turnover and associated recruitment and training expenses.

Alignment with Organizational Goals

With the constant and ever-changing complex workforce,aligning employee interests with the organization's goals and values is paramount. It encourages employees to work toward shared objectives, fostering a sense of teamwork and commitment.


Another major advantage is that it allows for flexibility in customizing rewards across diverse employee groups. Organizations can tailor their compensation elements, benefits offerings, recognition programs and perks according to the unique needs across different employee segments.

Components of Total Rewards Strategy


Five key components collectively contribute to attracting, retaining, and motivating employees. These components include:

1. Compensation

This includes base salaries, bonuses, incentives, and other financial rewards employees receive. An effective Compensation model should include competitive base pay based on job type and location and extra benefits that come under variable pay. Variable pay rewards performance and recognition within the company, which motivates employees to perform better. Variable pay can be short-term or long-term.

Short-term variable pay is a form of compensation that is disbursed to employees who achieve short-term improvements in productivity. It is offered for a predetermined period, typically less than a year.

Short Term Variable Pay includes:

a. Bonuses

Cash bonuses paid out based on individual, team or company performance over a short period, usually quarterly or annually.

b. Commissions

Payments made to salespeople based on the revenue they generate. Commissions reward performance over shorter periods like monthly or quarterly.

c. Profit sharing

Employees receive a portion of company profits based on earnings over a short period, like 6 months or a year.

Long-term variable pay is cash bonuses and stock options granted to employees who perform exceptionally for over a year. It's a guaranteed strategy that boosts profits, employee retention, and employee satisfaction

Long Term Variable Pay includes:

a. Stock options

Employees receive the right to buy company stock at a set price. The options vest over a longer period before they can be exercised.

b. Restricted stock units

Employees receive company stock as a bonus, with the stock vesting or becoming available over time, usually 3-5 years.
Long-term cash plans - Cash incentives paid for meeting performance goals over longer periods like 2-3 years.

2. Benefits

The benefits component is vital for cultivating employee contentment and retention. The benefits ecosystem should provide security and support at various life and career stages.

An attractive benefits package fuels recruitment, retention, and engagement within the total rewards system. It encompasses an array of offerings, including health insurance, retirement plans, paid time off, and various fringe benefits. For instance, access to healthcare and retirement plans alleviates concerns about medical expenses and future financial stability, reducing stress.

Paid time off provisions greatly enable a healthy work-life balance, enhancing morale and productivity. The inclusion of fringe benefits, such as wellness programs or employee discounts, further enriches the overall employee experience.

3. Professional Development

According to the SHRM study, 30% of employees considered career development opportunities for learning and personal growth very important.

According to a Gallup survey, up to 87% of Millennials consider development in a job important.

The chance for professional development on the job is especially important to the younger generations.

Training, mentoring, and career planning programs fall under this category. By investing in professional development, organizations not only enhance the skills and expertise of their workforce but also foster a culture of continuous learning and improvement.

4. Recognition

While financial compensation and benefits are essential, employee recognition adds a non-monetary dimension to rewards that can significantly impact employee morale and engagement. Employee awards, public praise, and peer recognition greatly promote a positive work environment.

Recommended Resource: Listen to this Podcast on Employee recognition by Matt Burns, where he explores on becoming an Employer of Choice (EOC) and the impact of recognition on business performance.

5. Employee Wellbeing

Initiatives that promote a healthy balance between work and personal life, such as flexible work arrangements or wellness programs, are increasingly important and contribute to higher job satisfaction, elevate employee morale, and reduce absenteeism. Workplace benefits, which include perks like on-site childcare, commuter benefits, or employee discounts, help enhance the overall employee experience.

Recommended Read:23 Low-Cost Employee Benefits Ideas For Your Workforce

Implementing a Total Rewards Strategy


Here is a step-by-step guide to implementing a total rewards strategy:

1. Assess your current rewards program

What do you already offer your employees in terms of compensation and benefits? How does your program compare to other employers in your industry?
Keep in mind that these questions are vital while assessing the program. Once you get a clear understanding of where your program stands in terms of effectiveness, you will be able to figure out the drawbacks.

2. Gather employee feedback

What are your employees' needs and priorities? What rewards would they value most? You can gather feedback through surveys, focus groups, and one-on-one conversations.Feedback is essential to understand what your employees want and how you can implement your total rewards strategy in the long run.

3. Identify your goals and objectives

What do you want your total rewards strategy to achieve? Define clear objectives for your total rewards strategy. Consider factors such as attracting top talent, increasing retention, and aligning rewards with organizational goals.Clear and tangible objectives will help you improvise the program accordingly. It will also help you enhance the overall impact of the program.

4. Designing the strategy

The design phase involves crafting a comprehensive package encompassing compensation, benefits, recognition, professional development, and well-being. Ensure it aligns with your goals and employee feedback. It should also be flexible enough to accommodate employees with different needs and preferences.Moreover, while designing the program, remember that it accommodates any future changes. The more flexible your program is the better it will be for you to tweak it according to the changing dynamics.

5. Communicate your rewards program to employees

Once the outline of the total rewards strategy is ready, the additions and changes should be communicated to your staff. Communicating your total rewards program to employees clearly and concisely is important. This will help you create a transparent system in the long run.

6. Evaluate the strategy

Once you roll out your strategy, it's imperative to review and update your rewards program regularly. With the ever-changing needs of your workforce, it's important to review and update your rewards program regularly to ensure it's still meeting your needs and the needs of your employees.

Further Reading: 6 Steps In Building An Employee Rewards And Recognition Program

Challenges of A Total Rewards Strategy


HR teams face a myriad of hurdles in crafting an effective total rewards strategy. Determining the return on investment of diverse programs is complicated, while tight budgets limit the funding available to support these initiatives.

Additionally, limitations on HR data and analytics capabilities restrict strategic insight. These challenges require investment, expertise, agile systems, and meticulous measurement.

Here are the common challenges that HR professionals face in implementing a total rewards plan -

1. Customization

Prioritizing the rewards program that suits every employee's needs is critical. But it is easier said than done. Striking a balance between standardization and customization is a constant challenge.
Most companies create a total rewards system that is plain and uniform for the sake of compensation equality. However, the key to an effective total rewards system is to keep in mind each employee's requirements and ensure fairness and equality at the same time.

2. Spoilt for Choice

Employee expectations around benefits continually evolve. Keeping the benefits package relevant and competitive requires ongoing assessment and adjustment. HR professionals and leaders must choose a sweet spot that suits their organizational culture and values.

Ask yourself tough questions about what you value most as an employer and how you can align your strategy with those values. The success of a total rewards strategy starts with a practical, integrated approach.

A competitive approach is required for the changing workforce demographics. Different generations and diverse workforce preferences require a flexible strategy that caters to various needs, from millennials seeking growth opportunities to older employees valuing retirement benefits. Technology and the changing nature of the workplace have changed how employees want to be rewarded.

It is advisable to conduct regular market research on compensation trends to avoid losing loyal employees and attracting the best talent.

4. Cost Management

Balancing the desire to offer competitive rewards with budget constraints can be tricky. Finding a cost-effective approach that meets employees' needs is essential.

Recommended Read: Employee Benefits & Compensation Ideas for Your Workforce

Effectiveness of a Total Rewards Strategy


Evaluating the effectiveness of a total rewards strategy is important to ensure that your rewards are aligned with your business goals and that they positively impact your employees. There are a number of ways to evaluate your strategy, including:

1. Employee surveys

Employee surveys can provide valuable feedback on what employees value and how they perceive the total rewards strategy. Questions around employee satisfaction in terms of salary, benefits, work-life balance, and other aspects of the rewards package can be included in the survey

2. Employee engagement metrics

Employee engagement metrics, such as employee turnover, absenteeism, and productivity, are good indicators of the effectiveness of a total rewards strategy. If employees are engaged and productive, this indicates that your rewards program is working fine

3. Key performance indicators (KPIs)

You can also develop specific KPIs to measure the effectiveness of your total rewards strategy. For example, you could track the percentage of employees participating in your benefits programs or the number of employees receiving performance bonuses.

4. Exit interviews

Exit interviews can provide insights into why employees leave the company and what they would have liked to see different about the total rewards strategy.


In the realm of Human Resources (HR), the importance of a well-structured total rewards strategy cannot be emphasized enough. This strategy serves as the backbone for attracting, retaining, and motivating top talent.

Comprising of both financial and non-financial elements it addresses the diverse needs and preferences of employees and aligns with the organization's overall goals and industry benchmarks, making it a critical component of HR management.


Q. What are the five components of the Total Rewards Strategy?

A Total Rewards package primarily has the below five components.

  • Compensation
  • Benefits
  • Professional Development
  • Recognition
  • Employee Wellbeing

Q. What are the benefits of the Total Rewards Strategy?

  • Attract and retain top talent
  • Increased engagement
  • Alignment with objectives
  • Productivity and Performance Lift
  • Flexibility
  • Cost optimization

Q. How to implement a Total Rewards Strategy?

  • Assessment and Analysis: Start by assessing your current rewards offerings and understanding your organization's goals and values.
  • Goal Setting: Define clear objectives for your total rewards strategy.
  • Design: Create a well-balanced rewards package that includes compensation, benefits, recognition, career development, work-life balance initiatives, and other components.
  • Communication: Develop a communication plan to inform employees about the new total rewards strategy.
  • Monitoring and Feedback: Continuously gather data on the effectiveness of the strategy.

Supriya Gupta is a new mother and communications pro at Vantage Circle. She is passionate about sports, news, climate change, and the power of storytelling. For any related queries, contact editor@vantagecircle.com

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