A major factor contributing to your organization’s competitive advantage is the total compensation package offered to employees. Total compensation/remuneration management contributes to an organization’s overall business objectives by attracting, retaining and motivating employees. Total compensation strengthens the relationship between employees, HR and the business strategy of an organization.

Remuneration identifies specific compensation components. These include salary, incentives, commissions, bonuses, stock, group benefits, pensions or retirement plans, annuities, deferred compensation plans, short and long term incentive plans, stock purchase plans, and profit sharing.

Cash compensation, on the other hand, includes salaries, cash bonuses, commissions and fees, the vested portion of any deferred cash compensation earned during the fiscal year and any other cash compensation.

Total compensation also includes the “soft stuff”; time off, training and development, career and job enrichment programs, working environment, and other non-monetary rewards.

The total compensation that an employee receives is made up of all the material rewards that the organization provides. The most obvious of these is cash, however, rewards rarely stops with cash; and many organizations also offer a large number of perquisites. This is particularly true at the executive level, where different kinds of perquisites are offered, ranging from air travel on corporate jets to memberships at country clubs and other social clubs.

Rewarding with total compensation packages, in order to attract the best and the brightest, can result in high-performance expectations being the norm and employees feeling fortunate to work for a high performing organization.

Total compensation levels also have a direct impact on the cost of an organization’s doing business. In order to achieve a good market position, organizations should reward better than their competitors do.

Objectives and Benefits

A total compensation package has numerous objectives and benefits, such as packages aimed at:

• Attracting, retaining and motivating employees.
• Achieving internal equity and legislative requirements:
• Achieving market competitiveness
• Impacting the structure of the organization if certain groups are singled out for special treatment of one kind or another.
• Encouraging high performance
• Providing a competitive advantage
• Complying with performance and rewards legislation (i.e.: pay equity, equal pay for work of equal value, overtime, etc…)

Process Considerations

Total compensation policies and practices necessitate alignment with an organization’s business strategy. When designing a total compensation program an organization should consider the design benefits and challenges from each “individual” compensation component to the “entire” total remuneration package. There are four key components to a successful compensation program:

Articulate the compensation philosophy. Organizations could avoid many problems with their total compensation programs if they would define the purpose and objectives of theses programs, and identify, specifically, how these programs translate into strategy and direction of the business.

It is important to understand the costs and benefits of each total compensation component and design elements. This is essential not only as it pertains to the question of “how much” of each component to provide but also as a key to informing management of the issues and trade-offs involved in the each design alternatives.
Stress the importance of good communication, not only so that the purpose and objectives of the compensation program are clear but also so that the good news will travel far and wide.

Human resource professionals have a critical role to play in developing the total compensation program — from being key disseminators of information about of how the programs will be managed to building consensus to support those programs.

Timeframe

Compensation/remuneration management occurs daily with respect to new hires and termination. It is monitored quarterly from a market and merit point of view and is strategically examined annually, every 3 years or every 5 years.