Tailoring a Total Rewards Strategy for Small Business Success

Quick look: A comprehensive total rewards strategy is just that: rewarding (for businesses and employees alike). Total rewards include compensation, benefits, well-being initiatives, and recognition, and help companies increase productivity, retention rates, and talent acquisition success. Here’s how to design an impactful total rewards plan, and how a PEO can help time-strapped SMBs reap the benefits of a well-appointed program.

Today’s employees want more than just a fair paycheck—they also seek comprehensive benefits, well-being programs, and learning and development opportunities. This combination, called total rewards, can help small businesses better attract top talent, retain valuable staff, increase engagement and productivity, and more.

Let’s explore the four primary categories of total rewards, how they benefit business performance and employee wellness, and tips to create an effective total rewards strategy.

What is a total rewards program?

According to Gartner, total rewards are “the combination of benefits, compensation, and rewards that employees receive from their organizations. This can include wages and bonuses as well as recognition, workplace flexibility, and career opportunities. Total rewards may also refer to the function or department within human resources (HR) that handles compensation and benefits, or the combined intrinsic and extrinsic rewards (or value) that an employee perceives.”

A total rewards program for employees includes four major components: compensation, employee benefits, well-being, recognition, and development.

Compensation

Compensation is the total amount paid to an employee by their employer. It includes their salary or hourly wage, commissions, bonuses, stock options, and on-call or holiday pay.

Employee benefits

Employee benefits are offered to staff in addition to compensation and foster their overall physical, mental, and financial health.

Common employee benefits include health, dental, vision, and life insurance, and retirement savings plans. Paid time off (PTO) and voluntary plans like supplemental health insurance, discount programs, pet insurance, family-forming support, and more are also considered employee benefits.

Well-being

Well-being rewards are designed to foster motivated and fulfilled workers to feel a sense of belonging at work. These rewards can include:

• Access to an employee assistance program (EAP), which provides free, confidential assessments, short-term counseling, referrals, and follow-up services regarding personal challenges
• Workplace diversity, equity, and inclusion (DEI) initiatives, including employee resource groups, equitable pay and promotions, and more
• Paid volunteer time off that allows staff to contribute to community and charity organizations
• An adequate work-life balance (i.e., flexible work schedules, hybrid or remote work options, etc.)

Recognition

Saying “thank you” and “congratulations” at work can take many forms, like:

• Years of service awards
• Customer service awards
• Employee appreciation events
• Social media shoutouts
• Internal shoutouts on a performance management platform

This appreciation makes workers feel good and drives positive business outcomes. According to Deloitte, lack of recognition is the most common reason professionals leave their jobs and nearly half want more recognition from their immediate manager and coworkers. Additionally, organizations with recognition programs had 31% lower voluntary turnover rates.

Development

Investing in your workforce’s skill sets is another crucial category of total rewards. The University of Phoenix’s Career Optimism Index® 2024 found that only 36% of employees feel their company offers internal mobility opportunities, and 65% consider a business’s reskilling and upskilling initiatives when considering new roles.

Developmental rewards focus on enhancing workers’ skills to help them reach their goals and can entail:

• Career pathing
• Mentorship programs
• Access to a robust learning and development platform
• Tuition reimbursement and student loan assistance

The importance of offering a total rewards program

A complete total rewards package supports employees’ success but also helps companies:

• Attract top talent: Unique benefits can attract candidates and enable small- and medium-sized businesses (SMBs) to better compete against their larger counterparts.
• Retain staff: Workers who feel adequately rewarded are more likely to stay, which helps organizations retain valuable institutional knowledge, maintain a strong company culture, and avoid the hefty expenses associated with replacing employees.
• Boost productivity: Happier workers, like those who receive fair and thoughtful total compensation, are 13% more productive.
• Enhance employee engagement and company culture: When people are satisfied with their pay, benefits, and advancement opportunities, they tend to remain engaged and drive a more positive culture.

4 steps to developing a total rewards strategy

An impactful total rewards program requires thorough planning and ongoing agility. SMBs can create and maintain their total rewards package by following four key steps outlined by the Society of Human Resource Management (SHRM): assessment, design, execution, and evaluation.

1. Assessment

The first step toward building a successful total rewards package is to fully understand its current effectiveness. Business leaders should assess the organization’s benefits plans and compensation system and determine whether they help the company reach its goals.

Gathering workforce feedback is also vital and can be done by conducting an anonymous employee pulse survey on benefit satisfaction, desired perks, and more. Mercer research found that just 39% of businesses optimize their rewards strategy based on employee preferences, meaning considering your staff’s interests when designing your total rewards strategy can help you stand out in the market.

2. Design

Next, organizations must identify their goals and priorities and which rewards strategies may perform best in their workplace.

Business leaders should aim to align their total rewards model with their company culture and core values. Additionally, staff’s overall well-being must be prioritized. This is another opportunity for SMBs to stand out, as the above Mercer research found that 1 in 3 companies don’t take a holistic approach to total rewards by considering tangible rewards (i.e., pay and benefits) and well-being, flexibility, and career programs.

Total rewards packages should also be fair, equitable, and personalized. Employee demographics can be reviewed during planning—something just 38% of organizations say they do, despite the growing demand for tailored benefits. Additionally, considering the needs and preferences of diverse groups, which 46% of companies do, ensures employees from all walks of life find value in the business’s offerings.

Benchmarking your organization’s benefits, programs, and policies against industry standards and best practices is also helpful during the design phase. Salary benchmarking can help businesses confirm their pay structures meet market standards, and a tool like ExtensisHR’s DEI Dashboard can provide at-a-glance pay, promotion, and turnover information for your workforce.

3. Execution

After you’ve planned your total rewards strategy, it’s time to get the word out!

Per Mercer, less than half of employers believe their workers understand their available total rewards well, signaling the importance of thoroughly and regularly communicating these programs to staff.

Your business’s employee handbook should be updated to reflect all rewards, and any relevant informational materials can be distributed to staff via email and a company intranet. Additionally, workers should be trained on what’s available to them. Ideally, these sessions should occur upon hire, annually during open enrollment, and following any mid-year rewards changes.

4. Evaluation

Total reward strategies should be regularly analyzed and amended to maintain effectiveness. Responsible parties should stay updated on HR and employee benefits trends and track the rewards’ costs and business impact. Some key HR metrics to measure are benefit utilization, employee retention, turnover, offer acceptance rates, and employee net promoter score (eNPS).

PEO: A rewarding partnership for SMBs

A comprehensive, diverse total rewards program can positively affect every corner of your business, from hiring and retention to the well-being of your workers and their families. However, planning, implementing, and sustaining a total rewards strategy can require time and resources that some SMBs don’t have to spare. That’s when a professional employer organization (PEO) can help.

PEOs manage various aspects of companies’ HR, employee benefits, payroll, and risk and compliance management. Partnering with a PEO may help your business secure competitive benefits and access human resource expertise cost-efficiently.

For example, ExtensisHR provides:

• SHRM-Certified HR Managers to help you build your total rewards strategy, update your employee handbook, etc.
• Comprehensive employee benefits with large-group pricing, as well as regular benefits communications to your staff
• A learning and development platform with a range of immersive, on-demand courses
• Affordable access to 15Five, a leading performance management platform with employee recognition features
• Salary survey and benchmarking tools for different positions within specific industries and geographical areas
• And more

Looking to improve your employee incentives? We’re here to help. Click here or contact us today to learn more about ExtensisHR’s PEO solution.