Salary, Incentive and Promotional Rewards
By Terri Herren
Total rewards include base salary, variable pay, promotional increases, benefits and other monetary recognition. Because it is typically a company’s most significant investment, the management of total rewards should be part of the overall strategic business plan. A first step in assessing total reward offerings begins by analyzing a company’s ability to attract and retain top talent. Considerations include competitive knowledge and market value in the industry.
If after developing the strategic plan, a change in total rewards is deemed necessary, a business case should be developed. The business case outlines the reasons the current model is no longer viable and why change is important for the future of the company and its people. It is the educational and communication program for company leaders and other team members.
Team members must understand the role of total rewards in the business, and what’s in it for them after implemented change. Communications should include discussing the advantages to the company and its people. An understandable, well presented business case increases the chance of buy-in which translates into more successful implementation.
There are three basic segments of total pay – base salary, variable pay and promotional increases.
Base salary is predicated on:
- The competencies the company requires and team members use to produce results
- The team member’s consistent performance
- The team member’s value in the labor market
Variable pay is most effective in rewarding team members for achieving specific business objectives. The most successful model includes 3 to 5 team member goals aligned with company goals and rewards based on defined contribution levels.
Variable pay is awarded only when the business achieves economic success and team members add measurable value. Variable pay serves to manage total pay costs because base salaries are not adjusted. Each performance period focuses on different or expanded business objectives to qualify for rewards. Variable pay goals should not be a regular part of a team member’s job. If they are easy for team members to attain without stretching their capabilities, rewards will become entitlements.
Promotional increases reward and recognize team members for developing required competencies and advancing their contribution levels. Promotional recognition and accompanying rewards are playing more crucial roles in retention of key talent, particularly Generation Y. Criteria for promotion should be defined and communicated for each level so team members can focus on specifics needed to advance their careers.
Total rewards will vary for each company but the common success factor is having a process that defines and communicates performance expectations and measurements. The process allows team members to understand the importance of adding value by accomplishing objectives that benefit the company and themselves.