Total rewards

The framework

Total rewards emerged in the 1990s and 2000s as HR’s answer to a specific problem: employees judged their deal on salary alone, and salary was the most expensive thing to move. Grouping pay with benefits, wellbeing, development and recognition under one heading was an attempt to show the whole picture, and to give employers levers other than the payroll.

The five-part model is the one most often used. Compensation covers salary, bonus and equity. Benefits cover pension, insurance and leave. Wellbeing covers health and flexibility. Development covers training and career progression. Recognition covers everything from a service award to a thank you in a channel. WorldatWork, the US association that did most to popularise the term, has revised the model several times, but the shape has held.

Where recognition sits

Recognition is the odd component. The other four are largely fixed by contract and reviewed annually. Recognition has no contract, can happen any day, and costs almost nothing per instance. It is the only part of the package that a manager can adjust this afternoon.

It is also the part least often designed. Companies spend months on their compensation bands and their benefits broker and leave recognition to whatever individual managers happen to do. The result shows up in surveys: 39% of employees say they do not feel appreciated at work, in the figures this site uses, and that is a total rewards failure as much as a cultural one. The post on why programs matter makes the case for treating the fifth component as seriously as the first.

How the framework is used

The most visible output is the total rewards statement: an annual document telling each employee what they received, valued in money. Pension contributions and insurance premiums, which people rarely notice, appear as figures. Recognition appears too, sometimes as a count of awards and sometimes valued, and this is where the framework strains. A service award has a price; a year of specific thanks from colleagues does not, and putting a number next to it undersells it.

The other use is strategic. A company that cannot compete on pay can compete on the mix, and recognition is the cheapest component to be excellent at. The start-up in the third example above is doing exactly this.

Where the framework misleads

Total rewards treats recognition as a reward, and the word carries assumptions. Rewards are given in exchange; they have a value; they can be totalled. The kind of recognition that works best resists all three. A colleague saying what they noticed is not an exchange, it has no cash value, and the sum of a year of it is a record rather than a number.

So the framework is right that recognition belongs in the package and wrong about what kind of thing it is. The recognition budget page covers the part that can be costed. The rest is the subject of most of this glossary.