The economic downturn and increased competition for the best talent are leading companies to adopt a more holistic approach to total rewards. They are going beyond benefits and compensation and incorporating elements such as career planning, performance management, employee training and work-life balance programs, experts say.

Doug Thomas, Northeast region leader for the compensation and benefits practice at SMART, a Devon, Pa.-based consulting firm, asserts, "I definitely see that [the focus on holistic total rewards] as a trend that won't stop in the near future."

He confirms that helping employees with career development "promotes a mutual loyalty, and that is a differentiating factor for companies that are taking total rewards seriously. It turns out to be a cornerstone of the organization's culture."

Tom McMullen, the U.S. reward practice leader for the Hay Group, a Philadelphia-based consulting firm, agrees that "getting this notion of total rewards across is a differentiator" for corporations seeking to hire and retain the best talent.

Thomas says employers are now communicating "in a way where those items [such as career planning, performance management, employee training and work-life balance] don't take a back seat anymore to the more direct compensation and benefit elements. Companies have to be much more effective in making the communications piece complete, including all those other elements."

However, he warns against the common mistake of promoting those programs when the company isn't serious and committed to them. "Employees will be quick to see that's just a slogan, rather than a commitment," he explains.

The holistic total rewards approach is a departure from old standards. "For many years, companies took the approach that it was up to employees to chart their own personal and career development," Thomas recalls. "Intense competition has changed that."

To improve recruiting and retention, many employers are enhancing their communications to workers about the total package that they receive from the company. "There's a trend to do a better job of that," says Chris Ellis, a senior vice president at Sibson Consulting.

However, he warns, many companies fall short because they rely on one-size-fits-all communications and fail to link the elements of total compensation to key business goals and strategies.

"They lose sight or don't pay enough attention to the issue of segmentation among their workers," he explains. "Different people value different things. You have to think creatively about how to segment your workforce" by business unit, life stage, career stage, type of work, achievement level (high performers versus average performers), and critical jobs versus non-critical jobs.

"People typically don't put enough thought into this overall program or package that they receive," Ellis confirms. Thus, some workers may leave your company for a competitor, with little to gain, because they don't fully understand what your company is offering to them.

Ellis advises employers to survey workers about what benefits, programs and compensation they value most and analyze the results based on workforce segments. Avoid asking employees what they want, he says, since everyone wants a lot of great things.

Also, beware of too much benchmarking. "A company would do better to have a serious discussion of internal wants and needs, rather than blindly following what the market does," McMullen suggests.

None of this is simple. Even getting a consensus about how to define total compensation and total rewards is challenging, says Ellis.

"The key is to develop your own definition, use it consistently and make sure people in the organization understand all the different moving pieces to total compensation," he notes. It's important to help "people understand the full scope of [their total compensation], what it means to them financially and what it means to them from an overall value proposition standpoint."

Role models

Hay Group analyzed 160 firms and found significant differences between the firms named on Fortune magazine's two "Most Admired Companies" lists and those that didn't make the lists.

Hay Group Vice President Mel Stark states, "These [most-admired] companies do a much better job of engaging and leveraging their managers to reinforce with employees the total value of what the organization provides, encompassing both the tangible and the intangible nature of rewards. In addition, these companies do a better job of rewarding top performers, delivering the best pay increases to those who are truly deserving and holding the line on pay for marginal performers. Over time, this results in a compounded effect of top performers earning appreciably more than others."

McMullen notes that the most-admired companies pay about 5% less in salary than other firms, but make up for it with intangible rewards, such as training and career development. He says the most-admired companies also "have consistency in their [total rewards] program design over the long haul."

Other key findings include:

• 79% of most-admired companies regularly provide total rewards statements, versus 53% of peer group respondents.

• 82% of most-admired firms regularly reinforce their rewards philosophy in communications with employees, compared to 64% of peer companies.

• 74% of most-admired companies state that their employees understand that rewards consist of tangible and intangible components, compared to 61% of peer companies.

• 28% of most-admired firms state that line managers utilize financial and non-financial recognition programs, compared to 16% of peer companies.

• 41% of most-admired companies believe that their rewards program is internally fair, while only 27% of their peers believe the same.

• 48% of most-admired firms report that their reward programs support efforts to retain their best talent, versus 28% of their peers.

• 45% of most-admired companies say that their reward program allows them to attract the talent they need, versus 25% of their peers.

In general, the most-admired firms "do a much better job communicating how their compensation program works," McMullen observes. "They do a much better job of consistently getting the word out to employees that this is the value of your package.'"

Response to lagging economy

Despite talk of a recession, most companies weren't looking to scale back their compensation programs, experts noted at press time. In fact, a number of companies are taking action to ensure their competitiveness by protecting and strengthening their programs for high performers, according to a new Mercer survey of 400 U.S. and Canadian employers.

About 15% of U.S. employers have recalibrated their pay-for-performance targets and policies, and 26% are considering it. Likewise, 10% of U.S. companies are developing new variable pay programs or enhancing existing ones, while 28% are considering it, Mercer reports.

Rising benefit costs continue to put the squeeze on compensation. As a result, benefit professionals and compensation professionals are collaborating more closely, says Marie Dufresne, a senior consultant at the Hay Group.