How to put together a total reward statement

Author: Tony Hatton-Gore

Summary

Click on any of the hyperlinks to go to more detailed guidance below.

Introduction

Total reward describes the full package of entitlements that an employee receives from their employment, going beyond remuneration and benefits to include the intangible aspects of the working environment, such as flexible working options and learning and development opportunities.

A total reward statement helps employees understand the composition and value of their reward package, including for individual benefits, by setting these out in a single document. In doing so, organisations are able to articulate the employer value proposition to employees and the practical implications for them of the organisation's reward strategy. By communicating to employees the total value of their package and the value of individual reward items, employers can reinforce their commitment to their workforce and showcase the investment in them, thereby promoting employee engagement.

Compiling total reward statements has been made easier as HR information systems, which enable the management and dissemination of reward information, become more widespread.

Defining total reward statements

Total reward statements will look different in every organisation, but there will be similarities. A total reward statement typically comprises a list, table or infographic of all the elements of the employee's reward package, with a short definition of these if necessary, together with their individual values and a total reward or package value.

Any element of reward can be included, although a total reward statement will typically include base pay, variable pay, share options or incentives, and benefits. Intangible or non-monetary items such as training and development and career opportunities may also be included without assigning a value.

Benefits of total reward statements

Employees often underestimate the value of their reward package, particularly when it comes to benefits beyond salary and bonus payments. A total reward statement provides personalised and up-to-date information that can enhance employees' understanding of their employer's reward policies. It can also facilitate full appreciation of reward elements that employees often do not consider the cost of, such as life insurance, employers' pension contributions and the provision of an employee assistance programme.

A total reward statement that includes all benefits available to an employee, whether or not they take advantage of them, can help the employee to enhance their package through making additional benefit choices. They also enable the employee to make well-informed decisions about their employment. In a competitive labour market, total reward statements can help boost employee retention, as an employee looking to move jobs because the alternative one offers a slightly higher base salary may find that the value of their reward package with their current employer is greater, when the full value of all benefits is taken into account.

The key reason for organisations to produce total reward statements is to raise awareness and appreciation among employees and thereby maximise their return on reward investment. Organisations hope that with greater awareness and appreciation of the full value of reward packages, employees will be more motivated and engaged, and ultimately therefore more productive.

A total reward statement can be used as an information tool by the employer, with details of each benefit included in the statement potentially reducing the number of enquiries from employees on what is available. The inclusion of all elements of reward can shift the emphasis away from basic salary and bonus - particularly important in a time of modest pay awards - and take-up rates for benefits may be enhanced if employees see what else is available to them.

A total reward statement need not be a static document; technology can be used to enable additional functionality. For example, integrating an online total reward statement with a benefit provider's systems can provide the employee with direct access to additional information and enable them to resolve queries or make choices in a flexible or voluntary benefits programme.

Total reward statements generally, and online total reward statements in particular, promote data integrity, as all stakeholders, including payroll, HR, line management and benefits providers must ensure that they have accurate data. This could lead to rationalisation of systems from the identification of opportunities to eliminate duplication across information sources.

Scrutiny of HR information systems for the purposes of extracting data for total reward statements can lead to improved usage of other aspects of HR systems' functionality, for example "self-service" tools that allow employees to amend personal data, book annual leave or apply for training. Encouraging employee self-service can lead to improved data accuracy, as employees are able to audit their personal data when they are accessing the system.

Total reward statement format

One method of presenting total reward statements is to provide a paper/offline statement. Such documents will comprise static data and represent a snapshot at a point in time. They enable the organisation to focus on reward communication at a specific time of year, and as such are typically issued following the annual pay review or bonus payment.

Paper/offline statements are particularly suited to mobile workers and others who do not have access to technology in the workplace, as they can be printed and posted to them. However, they will quickly become out of date as employees' terms and conditions change due to individual circumstances, such as promotions, or to organisational development, such as pay or benefit reviews. Therefore, organisations using this method should aim to distribute the statements to employees as soon as possible after the data is collected.

The alternative to a paper/offline statement is an online statement. These draw on real-time data and are easier to keep up to date, for example to reflect changes in pay and benefits. They can also include additional functionality, such as links to additional information, policies and processes, or to enable claims, for example for medical insurance. Online total reward statements can help organisations realise a return on investment in HR systems by providing a platform to access other functionality, for example to update personal information in the HR system.

When deciding which format to use to present total reward statements, organisations should consider the nature and characteristics of the workforce, including computer access and familiarity with systems. Online total reward statements may still be beneficial for employees who do not access systems at work if they have their own computer or smart phone from which they can view their statement.

The organisation should decide whether or not employees will be able to view previous statements, and the storage and data accuracy implications of making these available. Organisations may prefer to make a printer-friendly version of online total reward statements available, so that employees can keep a copy for their records.

Information to include in a total reward statement

There are no rules about what elements of reward organisations should include on a total reward statement, but they typically show:

  • base pay/salary;
  • variable pay/bonus;
  • options/incentives; and
  • benefits, including annual leave; medical, dental, life, disability and accident insurances; tax-efficient benefits (such as childcare vouchers and cycle-to-work schemes); transport-related benefits, for example season ticket loans; pensions; and family-related benefits such as maternity/paternity pay and parental leave.

The list of items will vary by individual employee because of eligibility requirements and differences in the contracts of employment for different categories of employee.

The elements of reward should have a value assigned to them. Values are usually the actual cost to the employer and should be consistent with any other internal communication on reward and benefits. The total reward package value derived from these elements should represent a credible estimate of the individual employee's package.

Employers should also list benefits for which there is no charge to the individual, such as eye tests, free tea and coffee and a subsidised canteen, as a reminder to the employee that there is a cost to the employer of providing these. By including all benefits and perks available, the employer is able to demonstrate the full benefits of the employment.

Employers may also include intangible/non-monetary items such as training and development, career opportunities and flexible working in the total reward statement, as they are an integral part of the total reward proposition. However, it is not necessarily practical to assign these with a value because both the actual and perceived value will vary between individuals: they may not take advantage of all opportunities open to them, they may value the items differently, and the cost of provision will not be standard. Including these items on the total reward statement highlights their importance, particularly if they are central to the organisation's values and thereby support the employer value proposition.

The organisation may be limited in what it can include in a total reward statement by the availability of the data. It is critically important that the data presented in the total reward statement is accurate, and therefore processes will need to be in place to check the data prior to it being used in the total reward statements.

Design of total reward statements

A well-designed total reward statement can have a big impact on employees. Visual impact can be maximised by using a diagram, such as a pie chart in the example below, to illustrate the percentage of the total package associated with each element; and by emphasising the total value.

Example total reward statement

Name: John Doe

Department: Sales

Job title: Sales consultant

Time period: 1/1/2018 - 31/12/2018

Summary

Reward element Value % of total reward value
Annual salary £28,500 73.3
Commission payments £3,250 8.4
Employer pension contributions £2,280 5.9
Private medical insurance (employer contribution) £840 2.1
Car allowance £4,000 10.3

Total reward value

£38,870

100%

Example total reward statement

The employer should make it clear how each reward element has been valued, ie whether it is based on the cost to employer, the value to the employee, or an estimate (for example valuations for stocks/share options). Benefits that both employees and employers contribute to, such as pensions and permanent health insurance, should list the costs to both parties. The time period that the statement covers should be clearly stated. If any individual benefits span a different time period this should be made clear.

As with most reward communication, the key is to keep the total reward statement simple and impactful. The statement must be complete, accurate and display the overall total prominently. The employer should think about the language used, ensuring that it is consistent with other workplace communications and that the terminology is commonly understood.

Every organisation's total reward statement will look different; and alternative layouts may be required within the organisation to reflect the composition of reward packages, for example by country, subsidiary company, or contract type.

Total reward statements also present an opportunity to support the organisation's employer value proposition by incorporating corporate branding. Most providers of technology solutions, whether HR information systems or specialist total reward statement/flexible benefits portals, provide the facility for corporate branding and may offer some degree of customisation.

The content and design of total reward statements should take account of both global and local considerations. In international organisations, some reward elements may be applicable globally and therefore appear on every total reward statement, for example salary and long-term incentives; whereas others, such as bonus schemes and benefits, may be local. Total reward statements can support the employer to offer global consistency and allow it to tailor the reward offering to compete in local markets. However, variations in business practice, as well as legislative and fiscal environments in different countries, mean that the content of total reward statements will vary significantly by country within the same organisation.

Additional functionality

Total reward statements are a good way to introduce self-service HR information systems by offering an added value service to employees. Accessing personal reward data is a good base on which to build the introduction of access to policies, procedures and other reward information.

Technology offers the scope to enhance the total reward statement offering, for example by enabling the employee to influence the composition of their package by access to flexible benefits. Total reward is not the same as flexible benefits, but is often a precursor to development of a flexible benefits scheme because it enables reward information to be organised into a single source and provides a platform for future development.

The employer may choose to develop the total reward statement into an employee portal offering a range of services to users. This enables the employer to realise a higher return from the investment in systems to integrate data and streamline business processes. Such services could include links to additional reward and benefit information, such as definitions and calculators; survey modules to seek feedback from employees; and connectivity to benefit providers and other third parties to improve the employee experience and facilitate administration.

Total reward statement providers

Organisations planning to implement online total reward statements will need to consider whether to use the in-house HR information systems (some providers offer a total reward module) or to engage a specialist provider. Paper/offline total reward statements will still require technology to put them together, and may be accessed online by employees even if they are not interactive.

In choosing a technology provider, the organisation should take into account:

  • how the provider will access data from the various internal sources such as spreadsheets, the HR information system, and finance and payroll systems;
  • the capability of the system used to produce total reward statements to interface with internal systems and benefit providers if they are providing data;
  • the level of personalisation possible, for example for the organisation to include their own branding and messaging on the total reward statements;
  • how employees can access online total reward statements, for example whether or not access is 24/7, multi-device and mobile capable;
  • the reliability of the chosen system, gathered from data such as uptime/downtime statistics from the provider;
  • whether or not the system can be used for a global audience, for example if it can support multiple languages, currencies, and data formats;
  • the service level of the provider, such as its technical, project management, consultancy, support and subsequent development capabilities;
  • the document management capability of the system, for example to provide additional information and access to the organisation's reward and benefits policies; and
  • the potential for development of other functionality of the online system, for example adding flexible benefits, if required.

Ensuring data security

The General Data Protection Regulation (2016/679 EU) (GDPR) requires strict controls on the collection, processing and storage of personal data. In selecting a total reward statement provider, the employer needs to satisfy itself that its chosen third-party provider understands its responsibilities as a processor of data and has in place appropriate technical and organisational measures to meet the requirements of the GDPR and ensure the protection of the rights of the data subjects. There must be a contract in place between the employer and the third party setting out specific details relating to the processing and the security measures (see What are an employer's obligations under the General Data Protection Regulation (GDPR) if it contracts with a third-party provider to process its employee data?).

Communication

Communication is key to a successful launch of total reward statements. The organisation should carefully plan the project before communicating any information, particularly about launch dates, to avoid creating unrealisable expectations or putting the team under unnecessary pressure. Organisations may choose to engage a communication specialist, who may be in-house or external, to help rollout total reward statements for the first time.

The organisation should ensure that communication is integrated so that total reward statements are consistent with other reward and HR communication as well as with specific policies and procedures, for example benefit eligibility or salary and bonus guidelines.

When the organisation is confident of a delivery date, it could consider a "teaser" communication to promote interest in the launch. Communication should include why the organisation has produced the statements, and how employees can access them. Communication personalised to the individual can be particularly effective.

The organisation will need to think about the timing of the launch of total reward statements. The most common approach is to issue them following the annual pay review, but organisations may also find new statements useful following a significant change in the benefits offering, or following a restructure. Communication will also be required for each annual launch of the new statements.

Total reward statements will inevitably focus attention on aspects of reward in an organisation, so it should be prepared for questions and debate. The organisation should equip managers and other stakeholders with a project brief, FAQs and other materials. Individuals may share information with each other that highlights apparent anomalies so the organisation should consider in advance how to handle such queries.

The communication plan should also include gathering feedback from employees. Including a feedback module on the statement will enable the organisation to understand how employees have received the statements, and to address any concerns in time for the next publication.

Other uses for total reward statements

Total reward statements are designed to inform employees about their reward package, but they can be used by organisations for other purposes, including:

  • to reinforce company values by relating reward elements to the values, for example by emphasising how reward elements such as pay or incentives relate to characteristics such as performance or customer focus, or by relating benefits to wider values, for example cycle-to-work schemes to support environmental concerns;
  • to support recruitment, by enclosing a total reward statement with the offer letter - there may be resistance to this, based on fears that it can be used to encourage counter-bidding by other employers, but experience suggests that candidates are impressed by such an approach and some recruiters believe that it can be a differentiator in the market;
  • to support benchmarking and inform policy on market positioning as well as informing discussion about the composition of the reward package, for example the balance between fixed and variable pay and benefits;
  • to promote awareness of under-appreciated or less well understood benefits (such as pensions) by keeping information in front of employees; and thereby inform policy development by encouraging awareness of reward generally (this will also support and inform future policy development on reward issues by making stakeholders more familiar with the concepts and enabling a higher standard of debate);
  • as a platform for development and implementation of flexible benefits to offer choice and thereby enhance the employer brand; and
  • to facilitate improved management reporting of employment costs by presenting a single source of data - this can enable simplification and integration of systems and management reporting to support organisational change.