Total Rewards can be described as the “tool kit” from which an organization chooses to offer and align a value proposition that creates value for both the organization and the employee. Total Rewards includes programs and practices that affect the organization’s ability to attract, motivate and retain employees.
Total Rewards is one of the six key human capital processes defined by TDRp(1). Total Rewards, for the purposes of organizing TDRp measures, includes:
- Compensation (salary) planning, including rewards
- Benefit planning
- Job classification
In some organizations, Total Rewards includes other activities such as performance and recognition, and development and career opportunities. In the TDRp framework, performance and recognition measures appear under the Performance Management process, and development and career opportunity measures are captured under the Leadership Development, Learning and Development, and Capability management Processes. In practice, each organization is free to organize their human capital activities any way they choose. We simply need a framework to organize the measures.
Each key process like Total Rewards contributes to the achievement of organization goals (for example, a 10% increase in sales or a 15% increase in productivity) and talent outcomes (for example, a 5 point increase in employee engagement or a 2 point increase in the retention rate). Often, talent outcomes are top-level goals of the organization on par with an increase in sales or a reduction in costs. Other times, the talent outcomes are viewed as intermediate goals in support of achieving the top-level goals. TDRp is designed to work in either case.
More than 100 measures are defined for Total Rewards. These measures are grouped by type of measure (efficiency, effectiveness, or outcome) and across six subcategories. Each organization should choose the measures most appropriate to achieve their goals and manage their human capital. Total Rewards will typically support the broader organizational goals, as well as talent management focused goals. A short summary of each Total Rewards subcategory, including examples, follows.
- Compensation – measures regarding employee compensation.
- Efficiency examples: Employee Cost Factor, Compensation Revenue Percent, Compensation Cost Impact of Replacement Hires, Overtime Cost Percent of Total Compensation
- Variable Compensation – measures regarding the variable components of employee compensation.
- Efficiency examples: Variable Compensation Percent, Bonus Percent of Total Compensation, Percent Contingent Labor Percentage, Total Bonus and Incentives Cost
- Pay for Performance – measures that calculate the differential pay earned by high performers.
- Efficiency examples: Average High Performer Total Compensation Costs, Average High Performer Salary
- Effectiveness examples: Compa Ratio, High Performer Total Compensation Differential, High Performers Salary Differential
- Benefits – measures related to the benefits provided to employees.
- Efficiency examples: Average benefit cost per employee, Benefit comparison percent, Average health care cost per employee, 401(k) Plan Utilization Percent
- Labor Cost – measures that capture both compensation and benefits.
- Efficiency examples: Labor Cost Revenue Percentage, Labor Cost Expense Percentage, Human Capital Cost Index
- Employee Equity – measures quantifying employee equity plans.
- Efficiency examples: Employee Ownership Rate, Average Equity Award Value, Average Option Award Shares, Average Stock Award Value, Percentage of Workforce Equity Eligible
In addition to being grouped by TDRp category (efficiency, effectiveness, outcome), the measures have also been grouped into Tiers, which are described below.
- Tier 1: These are typically going to be the Key Performance Indicators (KPIs) of a given Talent Process. They are likely to vary from one organization to the next and some “Tier 2” metrics may indeed be key to one organization and “Tier 1” metrics for them, while not for others. At a minimum, “Tier 1” metrics are a list of starting-point, TDRp suggested metrics for those looking to build measurement in a given Talent Process.
- Total Rewards examples: Compa Ratio, Overtime Cost Percent of Total Compensation, Variable Compensation Percent, Contingent Labor Percentage, Benefit Factor, Labor Cost Revenue Percentage, Labor Cost Expense Percentage
- Tier 2: These are typically going to be the supporting metrics for a given Talent Process, which one might look to in order to determine why any noticeable changes or trends in KPIs might be occurring.
- Total Rewards examples: Compensation Expense Percent, Bonus Percent of Total Compensation, Percent Workforce Incentive Eligible, High Performer Total Compensation Differential, 401(k) Plan Utilization Percent
- Tier 3: These are usually the raw data points that when used in combination with one another create the Tier 1 “KPIs” and Tier 2 “metrics.”
- Total Rewards examples: Total Employee Compensation Cost, Total Bonus and Incentives Cost, Total Cost of Employee Healthcare, Total Benefit Cost, Total Stock Option Award Value
Click here for a complete list of measures for Total Rewards. CTR members may also access the full electronic version of the TDRp Total Rewards Measures Library, which provides definitions, formulas, comparable measures, and complete references to source documents for a detailed discussion of each measure.
In addition to the measures described above, six sample statements and reports have been created for Total Rewards. These are available in pdf format and as Excel spreadsheets (CTR members only). The various statements and reports are described in the white paper Introduction to TDRp . The six include the following:
- High-level Business Outcome Statement (with quantitative and qualitative impacts)
- High-level Effectiveness Statement
- High-level Efficiency Statement
- Summary Report (with quantitative and qualitative impacts)
- Operations Report
- Program Report
These statements and reports are provided as a starting point in your understanding and application of TDRp. We know each organization is unique and will need to select its own measures, but the templates have proven valuable to the early adopters.
The white papers Introduction to TDRp and Extending TDRp to All Key Human Capital Processes are highly recommended. Since the TDRp initiative began with a focus on Learning & Development, more has been written for L&D than for the other key processes. The Tips and Tools for L&D, however, will also be helpful for understanding how to construct the various statements and reports for Total Rewards. With time, advice pieces will be written for each key process.
Notes: (1) The other five key human capital processes are Talent Acquisition, Learning & Development, Capability Management, Leadership Development, and Performance Management. Workforce Planning and Demographics has also been included as a key supporting process. For more on the TDRp framework see Introduction to TDRp and Extending TDRp to All Key Human Capital Processes .