Beyond compensation and benefits: Why your business needs a total rewards strategy
Finding and keeping employees have become top concerns for many Canadian entrepreneurs. A 2023 study by BDC found that 61% of entrepreneurs report struggling with recruitment and retention problems, compared to 42% back in 2018.
Unfortunately, these pressures are not expected to get better until the end of this decade.
“Attracting, retaining and motivating employees will be increasingly important as the population ages and labour shortages persist,” says Emilie Poirier, Business Advisor, BDC Advisory Services. “A total rewards strategy will be essential in helping small businesses compete against larger ones for qualified talent.”
What is a total rewards strategy?
A total rewards strategy helps your organization attract the right talent and retain its best employees. It also helps your leaders and workers focus on what is important by rewarding those who achieve your business goals and objectives.
In a total rewards strategy, your entire HR strategy is considered to understand how you are attracting and retaining workers. This includes compensation and benefits, as well as much more.
“Base pay and vacation are the minimum requirements an employer should offer,” Poirier says. “Many entrepreneurs think that compensation is a salary and that’s it. Meanwhile, they may be offering other advantages and failing to communicate them.”
She explains that total rewards often come down to communicating what you already offer.
“Having a strong total rewards package doesn’t mean you offer the best salaries,” Poirer says. “What about the coffee you supply every morning? Or the job shadowing opportunities you provide? Or even your support when employees volunteer for great causes they really care about?”
Besides attracting and retaining employees, a strong total rewards strategy can help your business achieve its objectives. “Total rewards can be strategically designed to motivate your employees and drive performance.”
What are the elements of a total rewards strategy?
It’s important to know the different elements of a total rewards package and to promote them to current and potential employees.
This is the monetary and non-monetary reward paid to employees for the services they provide to the company and is based on their skills, performance, experience and market value.
- Base salary
- Bonus (individual or team oriented)
- Stock options
These are the non-monetary rewards offered to employees as part of their salary package and are usually based on the employee's needs, preferences and eligibility.
- Health and life insurance
- Pension plan
- Retirement fund contribution
- Additional perks such as internet service, company discounts, health and wellness accounts, etc.
3. Total rewards
In addition to compensation and benefits, a total rewards package can include a variety of other advantages.
- Professional development
- Flexible work
- Wellness activities
- Electric vehicle recharging
How to build a total rewards strategy?
The key to building a total rewards strategy is to tie your workforce’s interests, efforts and deliverables into your organization’s overall strategy and goals. You can do this by taking the following steps.
1. Assess your current state
- Are they well defined and communicated to employees?
- Do your current rewards practices support your goals and culture?
- Do your employees have clear objectives and values that align with your business strategy?
- Do you measure and reward their performance?
- How does your current rewards system compare to that of your competitors?
2. Consult with employees
Don’t assume that you have clearly communicated your business goals or that your employees understand their role in helping you achieve them. The best way to find out is to ask them. Depending on the size of your team, you could do this through online surveys, focus groups, or interviews.
For insight into ways you can reward good performance, ask them about their preferences, needs and expectations—you’d be surprised how many people value flexibility or developmental opportunities over monetary compensation.
3. Tailor your total rewards to your business needs and goals
Once you have pinpointed the strengths and weaknesses of your current rewards system, you can identify where to make changes. Maybe your employees need clearer objectives. Perhaps you need to formalize the way you measure their performance. Then you can decide how to reward them, keeping your financial resources in mind.
Be creative and don’t be afraid to think outside the box—let your culture guide you. For example, if sustainability is one of your core values, you could offer an incentive to employees who commute to work by bicycle or public transit. If collaboration is key, offer group activities and social committees.
“A total rewards strategy should not be one-size-fits-all,” Poirier says. “You should offer your employees choices and options in how they use their rewards, such as personalized learning plans or voluntary benefits.” In addition, you should review and update your strategy based on changing business needs and market conditions, adds Poirier.
Communicating your total rewards strategy
Many organizations draft a compensation philosophy, which is a document that captures the main features and goals of your rewards strategy. Since small businesses may not be able to compete against larger ones in terms of base salary and benefits, a compensation philosophy helps to communicate the value of working for your organization.
The philosophy should include:
- summary statement
- commitment to pay equity
- pay positioning in the market (lag, match or lead)
- salary bands and how one progresses through them
- variable pay options, if applicable
- salary structure for the whole organization
Businesses can use the philosophy as a guideline—not only to help you make consistent compensation decisions within your company, but also to help you accurately portray yourself as an employer to job candidates. Many businesses also share their compensation philosophy with employees, which helps to manage expectations regarding salary increases, bonuses and everything compensation related.
“With pay equity and transparency getting more attention from governing bodies, businesses will soon have no choice but to define and openly share their pay structure,” Poirier points out. “A compensation philosophy can help you do that.”
How total rewards help you compete in an era of pay transparency
In 2021, Canada’s Pay Equity Act came into force for federally regulated workplaces with 10 or more employees. Under this act, employers must proactively examine their compensation practices to ensure that they’re providing equal pay to all employees doing work of equal value. Businesses have three years to increase the compensation of anyone receiving less pay than their counterparts.
In addition, several provinces including British Columbia, Ontario and Prince Edward Island, have recently passed a Pay Transparency Act, which aims to promote pay equity by making salary information more visible to employees and job applicants. Under this law:
- Employers are prohibited from seeking pay history information from job applicants
- Employers must include the expected pay or pay range in each publicly-advertised job posting
- It is prohibited to seek any disciplinary action in relation to pay transparency (i.e., if an employee shares their pay with another employee or reports an employer for non-compliance)
“Many small businesses do not have formal processes regarding compensation,” Poirier says. “Now’s the time to examine your offering and to define your total rewards strategy.” Being proactive will help you prepare for mandatory reporting to the government in the near future. It will also help you compete against larger companies who can afford to pay more by highlighting the unique advantages of working for your business.
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