In a competitive job market, offering a strong salary alone isn't enough to attract and retain top talent. Employees are looking for a more holistic approach to compensation—one that recognizes their contributions, supports their well-being, and offers opportunities for growth. That's where a total rewards strategy comes in. By considering every element of what makes an employee feel valued, companies can boost engagement, improve performance, and reduce turnover. According to Gallup, the differences in business outcomes between high- and low-engagement teams can be stark, including up to 43% lower turnover and 23% higher profitability. But what exactly does a total rewards strategy entail?

What is total rewards?

A total rewards strategy is a comprehensive approach that combines five key elements—compensation, benefits, work-life balance, recognition, and career development—to attract, retain, and engage employees. This holistic method goes beyond traditional salary and benefits to address everything employees value from their organization. Modern companies use total rewards strategies to stay competitive in today's talent market.

The importance of a total rewards strategy

A well-crafted total rewards strategy can transform your workplace, directly impacting employee attraction, engagement, and retention. Here's how it makes a difference:

Impact on employee attraction and retention

Employees today are looking for more than just a paycheck. They want to feel valued in multiple dimensions—from financial benefits to work-life balance. A thoughtful total rewards strategy that addresses these needs can make your organization stand out, giving you a competitive edge in recruitment and boosting retention rates.

Alignment with organizational goals

When a total rewards strategy is aligned with your company's goals, it supports business outcomes. For example, McKinsey found that companies with a top-quartile employee experience (EX) are more than twice as likely to achieve a top-quartile customer experience (CX). For example, offering performance-based bonuses or recognition programs can motivate employees to contribute to key business objectives, fostering a culture of achievement.

Connection to employee engagement and performance

When employees feel recognized and fairly compensated, they are more engaged and productive. This is especially critical as U.S. employee engagement has fallen to its lowest level in a decade, with only 31% of employees reporting they feel engaged at work. Total rewards strategies that emphasize recognition and personal growth can directly improve individual and team performance, leading to better business results overall.

Key components of a total rewards strategy

A comprehensive total rewards strategy includes five core components that address diverse workforce needs:

• Compensation: Base pay, bonuses, and incentives that attract talent while ensuring internal equity

• Benefits: Health insurance, retirement plans, and wellness programs that support long-term well-being

• Work-life balance: Flexible hours, remote work options, and generous leave policies that prevent burnout

• Performance and recognition: Structured programs that acknowledge achievements both financially and non-financially

• Career development: Growth opportunities, skill development, and mentorship that invest in employee futures. This is a critical retention tool, as lack of career development was the number-one reason frontline employees planned to leave their jobs in 2023.

Developing an effective total rewards strategy

Developing an effective total rewards strategy involves four key steps:

• Conduct internal audits: Assess current programs for competitiveness and alignment with organizational goals

• Understand employee preferences: Survey your workforce to identify what they value most in rewards and benefits

• Benchmark against industry standards: Compare your offerings with competitors to ensure market competitiveness

• Align with company culture: Ensure your strategy reflects organizational values and reinforces desired behaviors

Implementing your total rewards strategy

Once your strategy is designed, execution is key. A well-communicated and smoothly implemented plan ensures that it is embraced across the organization.

Communication and rollout plans

Clear internal communication is essential. Employees need to understand the benefits of the new strategy, how it impacts them, and why it's being implemented. Rollout plans should include multi-channel communication, from emails to manager-led discussions.

Training for managers and HR professionals

Managers and HR teams play a crucial role in the success of a total rewards strategy, as Gallup finds that managers are responsible for 70% of the variance in a team's engagement. Providing them with training ensures they can effectively communicate the benefits and address employee questions and concerns.

Addressing potential resistance to change

Some employees may resist changes to compensation and benefits. To ease transitions, be transparent about the reasons behind the changes and offer support for those who need time to adjust.

Measuring the success of your total rewards strategy

Track these key performance indicators to measure your strategy's effectiveness:

• Employee engagement scores: Monitor satisfaction and commitment levels through regular surveys

• Retention rates: Track turnover reduction, especially among high performers

• Recruitment metrics: Measure time-to-hire improvements and candidate acceptance rates

• Performance indicators: Monitor productivity increases and goal achievement rates

Maximizing the impact of your total rewards strategy

A total rewards strategy is a powerful tool for attracting, retaining, and engaging employees. By continuously refining your approach to align with employee needs and market trends, you can ensure that your organization remains competitive in today's talent market. Now is the time to evaluate your current strategy, make necessary adjustments, and implement a total rewards approach that maximizes employee satisfaction and organizational success. To see how Guru can help you manage and communicate your total rewards program with an AI source of truth, watch a demo.