SHRM-CP Functional Area 5: Total Rewards

What is SHRM’s BASK definition of Total Rewards?

• “Total Rewards refers to the design and implementation of compensation systems and benefit packages, which are used to attract and retain employees.”

What is total rewards?

• Includes six elements:

  • Compensation

  • Benefits

  • Work-life effectiveness

  • Recognition

  • Performance management

  • Talent development

• Those six elements collectively define an organization’s strategy to attract, motivate, retain, and engage employees

What are benefits?

• Includes various types of nonwage compensation paid to employees in addition to their nromal wages and salaries

What is compensation?

• Includes all the rewards earned by employees in return for their labor

What are perquisites?

• AKA “perks”

• More discretionary in nature

• Often given to employees who are doing notably well and/or have seniority

What are incentives?

• Systems of rewarding success and effort in the workplace by allowing employees to earn awards or recognition

What is remuneration?

• Money paid for a work or service

What are the four steps of the total rewards strategy process?

• Assessment

• Design

• Implementation

• Evaluation

What is the assessment stage of the total rewards strategy process?

• Focuses on a competent evaluation of the organization’s current compensation and benefits program

• Pay attention to the effectiveness of existing programs in fulfilling their purposes in an effective manner

• Conduct employee surveys to develop good information around employee attitudes and opinions

• Examine current policies and practices

What is an important result of the assessment phase in the total rewards strategy process?

• An assessment report that includes information on the current status of existing compensation and benefits coupled with recommendations for changes based on the assessment findings

What should an assessment report address?

• Who should be eligible for coverage?

• What behaviors of value should be rewarded?

• What type of rewards will do the best job?

• How will changes be funded?

What is the design stage of the total rewards strategy process?

• Objective is the identify the best reward strategies for the organization based on the conclusions of the assessment report

• A team of HR leaders and senior management should be tasked with identifying the best combination of pay and benefits needed to accomplish the goals stated in the assessment report

What is the implementation stage of the total rewards strategy process?

• HR is heavily involved in this stage

• A new rewards program needs information planning and material describing the new program’s features and benefits

• Success is largely dependent on the image communicated to the organization’s workforce

What is the evaluation stage of the total rewards strategy process?

• The organization measures the success of its new reward programs

What is the ultimate objective for an organization’s compensation and benefits system?

• Support the organization’s mission and strategy

What attributes should all pay decisions be?

• Be legal

• Be adequate

• Be motivating

• Be equitable

• Provide security

• Be cost-benefit effective

What is a basic principle of an organization’s alignment of its total rewards strategy and its mission?

• A business needs to generate sufficient revenue to cover its expenses

Regardless of the other factors, a compensation system must…

…fit the organization’s culture.

What are the two basic approaches an organization can take toward their employees in regards to organizational culture?

• Entitlement-Oriented

• Contribution-Oriented

What is an Entitlement-Oriented culture?

• Promotes a caring, protective feeling

• Wants employees to feel they are part of the family

• Places a high value on how the organization’s decisions affects the people in the organization

• Treat employees with respect and dignity

• Feels that employees are entitled to benefits such as health care, employee assistance, or disability insurance as a condition of employment

• Places less emphasis on individual contributions and more emphasis on the success of the organization as a whole

What is a Contribution-Oriented culture?

• More performance driven

• Puts greater emphasis on job performance and the contributions of individual employees

• Focuses on results but not so much on how the results are achieved

• Compensation focuses on performance-based pay, incentives, and shared responsibility for benefits

What is equity?

• Fairness and impartiality toward all concerned, based on the principles of even-handed dealing

• Implies giving as much advantage, consideration, or latitude to one party as it is given to another

What is employment equity?

• Men, women, and minorities have equal opportunity when applying for jobs

What is pay equity?

• Equal pay for different but equivalent work

What is internal equity?

• A situation that results when people feel that performance fairly determines the pay for everyone with a certain job or that relative difficulty results in appropriate differences in pay rates between jobs

What is external equity?

• Comparisons with other competitive pay structures

What must an effective pay strategy accomplish?

• Attract talented employees

• Motivate employees to perform optimally

• Foster personal growth and development

• Increase employee satisfaction with their work

• Keep talented employees from leaving

What are the four different pay strategies?

• Lag Market

• Match Market

• Lead Market

• Lead-Lag Market

What is a lag market pay strategy?

• The organization decides to pay less than other competitors

• Characteristic of organizations that experience moderate to high turnover in their market

What is the match market pay strategy?

• The organization decides to meet and stay current with other competitors’ pay levels

• Objective is to match the competition

What is the lead market pay strategy?

• The organization decides to pay more than other competitors

• Objective is to attract the best qualified candidates to increase workplace productivity, thus besting the competition

What is the lead-lag market pay strategy?

• The organization decides to treat employees differently according to their value to the organization

• Positions that are defined as key to the success of the organization are afforded a lead approach

• Positions that are more routine are treated with a more cost-saving lag approach

What are the two key issues we need to keep in mind when it comes to global remuneration issues and challenges?

• “At-Will” employment does not generally exist outside of the United States, limiting the ability of an employer to make any changes for its non-U.S. workforce

• Different types of employees have different protections outside the US

What are the four global orientations of Purlmutter’s Global Orientation on Global Compensation and Benefits Strategy?

• Ethnocentric

• Polycentric

• Regiocentric

• Geocentric

What is the ethnocentric global orientation in Purlmutter’s Global Orientation?

• Tight control of international operations

• Little autonomy

• Compensation and benefits developed at headquarters and rolled out globally

What is the polycentric global orientation in Purlmutter’s Global Orientation?

• Subsidiary treated as its own entity

• Local compensation and benefits policies, programs, and practices

What is the regiocentric global orientation in Purlmutter’s Global Orientation?

• Operations managed regionally

• Communication and coordination high within the region but less between regions

What is the geocentric global orientation in Purlmutter’s Global Orientation?

• Organization is seen as a single international enterprise with a strategic plan that’s global in orientation

What are the implications of an ethnocentric orientation for global compensation and benefits strategy?

• Leads to transfer of HQ total compensation policies, with inadequate consideration of local legal and cultural differences

• Directives to local country management may result in outward consistency but actual rejection of HQ’s practices

What are the implications of a polycentric orientation for global compensation and benefits strategy?

• Local culture and legal compensation norms are more likely to be understood and implemented

• Remuneration policies are likely to be consistent and integrated within each subsidiary

• Incentives tend to maximize achievement of local rather than global objectives

What are the implications of an regiocentric orientation for global compensation and benefits strategy?

• There is greater potential for consistency of remuneration approaches within a region. The proximity of countries may lead to the perception that remuneration practices are more similar than they really are

• Regional HQs may suffer blind spots with respect to country differences, leading to ethnocentrism at the regional level

What are the implications of an geocentric orientation for global compensation and benefits strategy?

• Local compensation strategies are more likely to be consistent with global policies

• A desire for too much global consistency can lead to the imposition of inappropriate policies at the local country level

• The development of consistent and equitable remuneration policies among global managers will facilitate efficient and effective transfers

What are the different factors that influence global remuneration?

• Labor market dymanics that exist in the business

• Regulatory, political, and cultural differences

• Taxation of compensation and benefits

• Operational legal and reporting structures in different geographies

• The role that mobility will play in future workforce strategy and deployment

What are some issues and challenges in global compensation and benefits?

• Standardization versus Localization

• Culture

• Competitive Labor Market

• Collective Bargaining, Employee Representation, and Government Mandates

• Economic Factors

• Taxation

• Laws and Statutory Regulations

What is Standardization versus Localization as an issue or challenge in global compensation and benefits?

• Strategies are standardized in keeping with the organization’s overall compensation and benefits philosophy

• Specific practices are localized to fit the context of the country, regional, or local conditions

What is Culture as an issue or challenge in global compensation and benefits?

• Cultural differences require that the value of compensation and benefits programs be in “the eye of the beholder.”

• Local benefits are more highly valued

• Differences are often based on deep-seated beliefs, attitudes, and values that are local in nature

What is Competitive Labor Market as an issue or challenge in global compensation and benefits?

• Compensation and benefits required to attract and maintain talent are determined by the competitive demand for that talent

• The competition for talent may vary across countries and regions, depending on factors such as type of talent, geographic scope of talent market, industries in which the talent may be found, and the mix of remuneration components

What is Collective Bargaining, Employee Representation, and Government Mandates as an issue or challenge in global compensation and benefits?

• Certain types and categories of employees in most parts of the world are protected rom actions that impact their wages and employment conditions

• Unions play a strong role in many countries and sometimes include provisions for management as well as employees

• Work councils also offer worker protections

What are Economic Factors as an issue or challenge in global compensation and benefits?

• Many differences exist from one country to the next in terms of the influence of politics and power, the distribution of wealth across a country’s citizenry, the unpredictability of events, as well as the level of unemployment or scarcity of talent

What is Taxation as an issue or challenge in global compensation and benefits?

• Tax regulations differ widely from country to country. Some benefits that are taxable in one country are not taxable in geographically adjacent countries, and vise versa

• There are complicated and ever-changing tax compliance requirements for nationals from one country working in another

What are Laws and Statuatory Regulations as an issue or challenge in global compensation and benefits?

• Laws and statuatory regulatiosn impact the remuneration of employees in many areas, such as work hours and compulsory time off

• There are significant country-to-country variances as well as some regional and local differences

What are the Global HR Implications of Standardization versus Localization as an issue or challenge of global compensation and benefits?

• Organization has a long-term plan to support the organizational compensation and benefits philosophy, but local restrictions, tax regimes, and culture are considered

What are the Global HR Implications of Culture as an issue or challenge of global compensation and benefits?

• Avoids HQ biases or replication of HQ country policies and procedures

• Involves local contacts to understand the localized usual and customary compensation and benefits practices

What are the Global HR Implications of Competitive Labor Market as an issue or challenge of global compensation and benefits?

• Rates of pay in the relative marketplace are based on the skills needed, the demand for talent, and the best way to compensate different type sof workers

• Appropriate combinations of pay and benefits are offered that appeal to current or perpsective employees

• When industry-specific expertise is in short supply or competition is high, the hires on the job are retrained or coached

What are the Global HR Implications of Collective Bargaining, Employee Representation, and Government Mandates as an issue or challenge of global compensation and benefits?

• Comply with the requirements of third-party representation

• Understand the implications for minimum wages, severance packages, and pensions

• Adhere to related government regulations and mandates and insutry-wide collective agreements

What are the Global HR Implications of Economic Factors as an issue or challenge of global compensation and benefits?

• Unofficial sources of power in a community or region and official governmental personnel may have a large impact on what is considered acceptable

  • Educational facilities, internal training, childcare, or other local services contribute support to the local area

• Local inflation/deflation or currency fluctuations are significant factors

• Contigency plans may be required to mitigate the risks associated with potential changes in economic factors

What are the Global HR Implications of Taxation as an issue or challenge of global compensation and benefits?

• Experts in local compensation and benefits laws and practices, as well as country taxation, may be required

• A benefit may be unacceptable depending on how it is taxed

What are the Global HR Implications of Lws and Statuatory Regulations as an issue or challenge of global compensation and benefits?

• Requires an understanding of the differences and similarities in each market

• Includes the ability to recognize benefits that are government-provided, mandated by the government, or chosen by the employee

• Usually involves experts in local compensation and benefits laws and regulations as well as country taxation, particularly for expatriates

What two factors must be addressed as part of developing a total rewards strategy?

• PESTLE Factors

• Employee Lifecycle

What are the PESTLE Factors?

• Political

• Economic

• Social

• Technological

• Legal

• Environmental

How do political factors impact total rewards?

• The head of government or legislative body in control have a particular agenda or position on employee pay and executive pay, which their approach and legislation impact an organization’s total rewards

How do economic factors impact total rewards?

• A city, state, or country economy as well as the global economy impacts an organization’s ability to provide total rewards

• Poor Economies

  • Stunt organizational growth and the hiring of new talent

  • Employee retention can increase because of slow job growth/few external opportunities

• Growing and Posperous Economies

  • Benefit organizational bottom lines and encourage and promote hiring but accentuate the need for employee retention as employees will look to leave for a better opportunity

How do social factors impact total rewards?

• Citizens have view toward organizational pay, particularly that of the C-Suite and the CEO

• Often, compensation for the highest levels of an organization is viewed as exorbitant and leads to negative public opinion

How do technological factors impact total rewards?

• An organization’s ability to automate, streamline, and improve the efficiency of many transactions that accompany total rewards are directly impact by technological advances

• Organizations can outsource their technology requirements to third-party vendors that develop and manage applications

• Companies can also develop the technology themselves, usually because they lack the money, expertise, or ability to maintain the technology

How do legal factors impact total rewards?

• HR needs to make sure the organization is in compliance with local, state, federal, and international laws related to pay

• HR needs to be proficient in compliance with total rewards-related acts and legislation where the organization does business, as they are charged with providing expertise

How do environmental factors impact total rewards?

• An organization’s response to the natural world or geography of where jobs will be located and what the corresponding total rewards package will be

What is the employee lifecycle (ELC)?

• Refers to the variosu stages of the employment process

What are the stages of the employee lifecycle (ELC)?

• Recruitment

• Selection

• Orientation and Onboarding

• Position Training

• Development, Engagement, and Retention

• Succession

• Separation

What is the recruitment stage of the employee lifecycle?

• Begins before the individual employee is even identified

• The employer begins its planning and engages in its initial search for potential applicants

What is the selection stage of the employee lifecycle?

• A qualified candidate is identified and hired

What is the orientation and onboarding stage of the employee lifecycle?

• Initial sharing of information about the organization happens

• This when it is most effective to have completed integration into the workforce

• The employee begins to settle into the job, integrate with the organization’s culture, gets familiar with co-workers and management, makes sure they are aware of their responsibilities, and gets comfortable in their new role

What is the position training stage of the employee lifecycle?

• Employees are hired or promoted due to their knowledge and skill set, but they still need some training for each unique job’s duties

What is the development, engagement, and retention stage of the employee lifecycle?

• The bulk of an employee’s career

• Effective organizations continue with ongoing training to keep skills current and workers more engaged, leading to longer retention

What is the succession stage of the employee lifecycle?

• An employee likely wants to advance within the workplace at an average to speedy rate

• Managers, supervisors, and HR professionals need to be able to recognize changing interests and needs and be capable of matching the organization’s interests with the individual’s needs and more challenging assignments

What is the separation stage of the employee lifecycle?

• An employee either quits, retires, or is terminated by the employer and the employment relationship ends

What are the three core principles of sound design and delivery of the total rewards framework?

• Align the total rewards strategy with the organization’s business strategy and related workforce goals

• Optimize the money spent by allocating it among the programs that matter to employees and deliver the right return while being sensitive to cost and risk objectives

• Design, communicate, implement, and deliver rewards that drive the specific employee behaviors you need to achieve your business strategy

What are important considerations that affect the effective communications of total rewards?

• Type of Information

• Communication Plans

• Individualized Compensation and Benefits Statements

• Self-Service Technologies

• Consistent Key Messages

What do you need to consider when it comes to “Type of Information” when building effective communications of total rewards?

• Communications can be either:

  • Required Communications

    • Set by laws and regulations

    • Organization is responsible for ensuring compliance with legal requirements

  • Voluntary Communications

    • Organizations must go above the legal minimum and build communication policies that clearly identify the message outlining policies and procedures as well as management expectations

What do you need to consider when it comes to “Communication Plans” when building effective communications of total rewards?

• The larger the organization, the greater the need for a comprehensive communications plan

  • A good place to start is a SWOT analysis

• Plans vary and should be written

What do you need to consider when it comes to “Individual Compensation and Benefits Statements” when building effective communications of total rewards?

• These statements show the true and total compensation value to employees

• Total compensation statements contribute to improved employee morale

• Helps attract and retain quality employees by identifying a more rounded picture of both the direct and indirect compensation

What do you need to consider when it comes to “Self-Service Technologies” when building effective communications of total rewards?

• Employee Self-Service (ESS) software is an HR technology tool that gives employees the power to manage their own personal data

• Enables employees to view and amend personal data, make requests for leave, easily access corporate policies, assess corporate communications, etc.

• Gives employees higher level of control over the data that pertains to them

• Incredibly powerful tool for employee engagement

What do you need to consider when it comes to “Consistent Key Messages” when building effective communications of total rewards?

• When an organization is spread across multiple locations, it requires extra effort to present a clearly communicated consistent message

• The larger the location, the more varied the culture are, and messages can be understood in different ways depending on the cultural perspectives

What happens during the evaluation phase of implementing a total rewards program?

• Actual results of the executed total rewards strategies are compared against the desired results

• Objective is to show top management that the company’s investment in its total rewards system has paid off

• HR should be encouraged to measure the outcomes of the executed total rewards system to interpret the findings correctly

What three terms often play a major role in the evaluation phase?

• Measures

• Metrics

• Analytics

What is the definition of “measures” in the evaluation phase of implementing the total rewards strategy?

• The process of collecting and tabulating data

• Standard unit used to express the size, amount, or degree of something

What is the definition of “metrics” in the evaluation phase of implementing the total rewards strategy?

• Performance parameters based on the relationship between two or more measures

• Quantifiable measure that organizations use to track, monitor, and assess the success or failure of various business procedures

What is the definition of “analytics” in the evaluation phase of implementing the total rewards strategy?

• Convert a metric into a decision-supporting insight

• Information results from the systematic analysis of data or statistics

What key questions must be addressed to effectively conduct a total rewards strategy evaluation?

• Is the total rewards strategy in legal compliance?

• Is the total rewards strategy compatible with the organization’s mission and strategy?

• Does the total rewards strategy fit the culture?

• Is the total rewards strategy internally equitable and externally competitive?

• Can the organization afford the compensation plan as designed?

What are some examples of direct compensation, or “cash”?

• Base pay (wages and salary)

• Commissions

• Bonuses

• Merit pay

• Piece rate pay

• Differential pay

• Cash award

• Profit sharing

• Gainsharing

What are some examples of indirect compensation, or “benefits”?

• Social Security

• Unemployment insurance

• Disability insurance

• Pensions

• 401(k) and other similar savings programs

• Health care

• Vacations

• Sick leave

• Paid time off

What are the four key activities of the compensation system design process?

• Job Analysis

• Job Documentation

• Job Evaluation

• Pay Structure

What is a job?

• Either a

  • Piece of work, especially a specific task done as part of the routine of one’s occupation or for an agreed price

  • A post of employment; full-time or part-time position

• They are comprised of duties and responsibilities that are described in the job description

What is a position?

• A particular set of duties and responsibilities regularly assigned to an individual

What is Job Analysis in the compensation system design process?

• The process of collecting information about a job

• Identifies duties and qualifications of incumbents

What considerations must be factors in conducting a job analysis?

• The facts identified must relate to the job and not the job incumbent

• The duties and responsibilities must be for the job as it exists rather than what it is thought to be

• Job facts must be verified to make sure they are accurate

• Each duty must be analyzed to identify which duties are essential to the job function

• When there is more than one job incumbent, only one job analysis should be required

What are the different methods that can be used to collect information as part of a job analysis?

• Observation

• Interview

• Highly Structured Questionnaire

• Open-Ended Questionnaire

• Work Diary or Log

• Hybrid

What is “Observation” as a method to collect information as part of a job analysis?

• Involves the direct observation of employees performing the tasks of a job, recording observations, and translating them into the necessary knowledge, skills, and abilities

• Provides a realistic view of the daily tasks and activities performed in a job, but recognize that the presence of an observer can change the environment

• Be sensitive to when the observation is happening and whether it is capturing or missing critical activities

What is “Interview” as a method to collect information as part of a job analysis?

• Involves a face-to-face interview, where the interviewer obtains the necessary information from the employee, peers, supervisor, or team/unit members about the knowledge, skills, and abilities needed to perform the ojb

• Interviewer uses predetermined questions with new ones added as follow-up based on the response of the interviewee

• Particularly good for prfoessional jobs

What is “Highly Structured Questionnaire” as a method to collect information as part of a job analysis?

• Involves questionnaires structured in a way that required specific responses aimed at determining the frequency with which specific tasks are performed, their relative importance, and the skills required

• Defines a job with a relatively objective approach that also enables analysis that is easily adaptable to using computer models

• Helpful when there are many jobs that must be analyzed and there are insufficient resources to do it

What is “Open-Ended Questionnaire” as a method to collect information as part of a job analysis?

• Involves ussuing questionnaires to job incumbents, and sometimes to their supervisors or managers, asking about the knowledge, skills, and abilities necessary to perform the job

• After the answers are combined, a composite statement of job requirements is published from which a job description can be refined