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Section II
Total Reward
What should be considered before embracing this approach
When dealing with reward issues it should always be kept in mind that in his two-factor
model Frederick Herzberg (1957) considered salary, or in general financial reward, as a
“maintenance” or “hygiene” factor.
Indeed, the use of the term “hygiene” was not casually adopted, it has in fact a medical
correlation, the associated meaning being that hygiene factors are considered job factors
which if improved are unable to bring a healthier state but just help prevent illness
(Porter et al, 2006). Put it another way, hygiene factors are more likely to help not
deteriorate and maintain the current state of play rather than contributing to effectively
improve it.
According to the thorough and still incredibly relevant to modern times study carried out
by Herzberg, hence, hygiene factors are dissatisfiers, that is factors which can contribute
to reduce and in some cases eliminate dissatisfaction, but unable to increase employees’
satisfaction. By means of these factors individuals can reach somewhat of a neutral point
in between complete satisfaction and total dissatisfaction (Longo, 2010).
Herzberg’s study, as well as similar studies carried out by other Authors at different
times, has shown that salary increases have motivational effects lasting just for about
three weeks (Porter et al, 2006). Notwithstanding, Herzberg did not consider salary
completely unimportant in that, as we have seen, financial rewards exert, in any case, a
certain influence over motivation and, if limited, can curb the positive effects produced
over motivation by satisfiers. All of that was summarized by Herzberg (1968) by means
of the dissatisfiers-satisfiers continuum, Table 6.
Findings of Herzberg’s investigation revealed that even when salary was positively
mentioned by employees it was invariably linked to achievement, success, growth and a
job well done, and not simply as money per se.
40
Total Reward
Table 6 – Herzberg’s dissatisfiers-satisfiers continuum
All of that should actually be positively hailed by employers. In the event salary, and
financial rewards in general, should have actually been the only levers to which
organizations could have had recourse in order to induce and foster individual motivation,
this would have led to a situation in which employers should have been obliged to
constantly increase the value of the financial reward packages offered in order to sustain
and nurture their staff motivation. After a while, independently of the fact it could be a
matter of three weeks, three months or a year, employers will found themselves pouring
money into a bottomless pit, something which sooner or later will have prompt
employers to call in the receivers (Longo, 2010).
With specific reference to this point, Cappelli (2000) suggests that although paying staff
competitive salaries can help organizations to attract and retain quality individuals,
business will surely meet a limit to the extent they can compete in the “pull of the
market.” He also claims that albeit golden handcuffs and loyalty bonuses in general, are
used by organizations to retain high-flyers, their effects are unlikely to be long-lasting;
whether and once individuals should decide to go, they will go.
Findings of many surveys have actually supported these conclusions. An investigation
carried out by Development Dimensions International (2004), for instance, revealed
many employees to be bored, lacking commitment and looking for another job. What
more relevant and interesting, pay actually came fifth amongst the reasons provided by
respondents for leaving their jobs, whereas the main reasons were:
- Lack of motivating and compelling jobs and no opportunity for advancement – which
were actually considered by Herzberg motivating factors,
- The absence of prospects for promotions,
- Lack of a challenging work,
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Total Reward
- Desire to work in a more exciting place,
- The hankering for performing a more varied work.
These findings are actually consistent with those emerged from the above-mentioned
National Training Awards Survey (2010) and altogether support, to some extent, the
conclusion reached by Herzberg and other Authors about the effects, just limited to the
short run, capable of producing salary and salary increases on motivation.
Some evidences supporting this idea are also provided in practice by some exceptional
events. Consider, for instance, the case in which a person inherits a large sum of money
or wins a great lottery prize, many people in such a situation continue to work or decide
to start-up their own business; clearly their motivators are achievement, responsibility
and growth. Their self-fulfilment and their main motivations are clearly mostly provided
by their work rather than by money, which could then be considered as a mean to an
end rather than as an end itself (Longo, 2010).
Although each of us would possibly be pleased to experience such a situation, it is very
likely that after a while just spending the money won in the lottery or received in the
form of a legacy, will result to be boring and not that exciting for many.
Money is clearly an important personal driver to achieve a decent and comfortable life-
style but, as we have seen, once this objective has been attained, money motivation
power is destined to waning.
It might be interesting to point out that, in contrast with what claimed by Herzberg,
nearly a century ago, Frederick Taylor (1917) had strongly supported a transactional
theory underpinned by the idea that people just work for a financial reward, that is,
money.
Studies carried out later by Mary Parker Follet (1926, cited in Graham, 1995) and Elton
Mayo (1949), however, claiming that people are mostly and mainly motivated by the
“social factor”, had essentially come to conclusions very similar to those reached by
Herzberg.
Herzberg’s studies were not limited to the acknowledgement of financial rewards as
hygiene factors; the two-factor model related investigation in fact also allowed Herzberg
to identify what the truly motivators are.
According to Herzberg (1957), factors genuinely contributing to motivate staff are the
work itself, recognition, responsibility, advancement in the sense of growth and
achievement.
Herzberg’s contribution to the investigation of the factors really having an impact on
motivation, with particular reference to the importance of the intrinsic motivating factors,
is particularly valuable, as well as is his contribution to the work enrichment movement.
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Total Reward
He deemed the role played by intrinsic factors pivotal, claiming that the satisfaction of a
job holder can be improved by:
- Job enlargement - horizontal growth,
- Job enrichment - vertical growth, and
- Job rotation.
He also suggested that managers should always treat their staff fairly in that employees
are very likely to remember the effects of unfair treatment and to develop a “revenge
psychology”, which would not really be the best contributor to engage and motivate staff.
Very hardly the bonuses, benefits and/or salary increases paid by an organization to its
staff could be able to compensate (here literally) the behaviour of a manager treating
individuals unfairly.
It might be supposed that this could have nothing to do with total reward, but it could be
actually hardly believed that the developers of the total reward concept, from Adam
Smith (1776) on, were unaware of or ignored Herzberg’s studies and investigations, not
to mention that they possibly developed the total reward idea starting from Herzberg’s
study findings.
There are very good practical reasons for organizations constantly striving to motivate
and engage staff. Fundamentally, motivation is aimed at improving employees’
performance, which in turn will allow businesses to:
- Improve staff productivity,
- Gain and preserve competitive advantage,
- Reduce personnel cost and, ultimately, increase profit.
Many kinds of perks, salary and financial compensation in general, which are nowadays
no longer perceived by staff like additional benefits, but rather like something the
employer has to give them as a matter of course, are no longer effectively helping
employers to retain and motivate high-fliers in particular and staff in general (Longo,
2010).
A good deal of academic studies, such as those carried out by Maslow (1954) and
McGregor (1960), have provided evidence of the fact that intrinsic factors have a
positive impact on motivation. Herzberg’s study went towards this direction too and,
some criticisms notwithstanding, his conclusions, which also support the central belief of
the dignity of labour and Protestant ethic according to which “work is good in itself”,
have been, and are still considered today, extremely important.
Total reward is basically aiming at providing solutions helping organizations to attract,
retain and motivate individuals by means of a wider and more effective range of options.
The concept is based and relies on the synergetic multiplicative bundle effect principle
rather than only on the effects produced by the financial means taken in isolation, which
on their own have proved not to be that effective. And that is why Herzberg’s study on
intrinsic factors is still extremely relevant and important (Longo, 2010).
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Total Reward
Despite their unquestionable validity, Herzberg’s theories are not completely bullet-proof
so that his theories have been subject to different kinds of attacks over the years.
One of the most interesting and partially justified criticisms to Herzberg’s study relates
to the lack of any attempt to investigate the presence of possible linkages between
employee satisfaction and performance. Albeit the existence of such a link could be
considered to an extent somewhat of natural, the presence of a causal relationship
between satisfaction and performance is still today considered questionable for lack of
adequate scientific evidence.
Another interesting criticism relates to the circumstance that staff diversity makes it
difficult to exactly determine what satisfies and dissatisfies each individual. People are
different, and not everybody, for instance, may want his job enriched. This is absolutely
true but, to some extent, this remark should not be actually seen as a criticism or as a
weakening statement of the Herzberg’s model, even more so when applied to the total
reward concept. What Herzberg essentially meant was stressing the circumstance that
whether employers should strive to keep their employees engaged with cash, they would
be unlikely to attain their aim. The one-size-fits-all tenet cannot clearly be considered a
founding pillar of reward practices, not only by reason of staff diversity but also because
it would be wrong assuming that the same individuals may want the same things at
different times (Longo, 2010). Individuals’ needs cannot be considered fixed and static,
but rather as a dynamic variable influenced by the changing tastes and by the “diversity”
factor. Herzberg conclusion was that there are a series of components or elements,
namely satisfiers and dissatisfiers, which have a considerable impact on individual
behaviour. It is up to employers, however, determining which of, and how, these
elements have to be offered to employees according to their different current wants and
preferences.
Total reward systems need to be adopted and subsequently adapted to individuals.
Whether total reward would be applied to food, we would say that, once all of the
ingredients preferred by employees have been identified, its aim would be that to offer
employees a menu where the dishes they want to eat are absolutely listed. Total reward
would this way be the restaurant where individuals could eat the dishes they really like
to eat.
Once an overarching total reward system has been developed, there will surely be
people preferring bundles whose composition is characterised by a more relevant
financial component, individuals preferring bundles with a predominant intrinsic
component and others desiring bundles nearly equally balanced. These preferences will,
however, be subject to changes with the passing of the years.
Total reward concept and idea
Inasmuch as employers find it difficult to attract, retain, motivate and engage staff, they
have found out, over the years, that there is no way to effectively and lastingly achieve
44
Total Reward
such an ambitious objective by means of reward packages exclusively based on financial
rewards. This has possibly ever, or almost ever, been true, but this can be even
considered truer in recent times because of the changing content of the psychological
contract. Individuals in fact are no longer expected to receive from their employer just a
salary in exchange for the activities they carry out and the results they produce. They
are nowadays expected that employers, in addition to financial rewards, will also offer
them, for their contribution, opportunities to perform significant jobs and prospects for
growth and development. Indeed, employees are also supposed to be offered a higher
level of involvement in their job planning and to have their say in the design of the job
they carry out and the way it is executed.
In general, it is very unlikely that such a difficult feat might be achieved just having
recourse to one or two levers or initiatives, especially when the effects of these
achievements have to be held and maintained over the years to come.
Total reward represents the most appropriate solution enabling employers to retain,
motivate and engage people in that it is basically lying and relying on an array of
different activities and initiatives which, combined one another in a perfect bundling-
style, can effectually enable organizations to achieve their intended aims.
The idea of total reward, based on considering reward not only from its financial
viewpoint, but also from its non-financial outlook, essentially extents the traditional
concept and implications of reward management. Reward management is no longer
intended as the management of pay and benefits, but in a more comprehensive,
overarching extent where also training, development, involvement and growth have a
pivotal role to play. These implications are actually very important in that this broader
meaning of reward management also has an impact on the strategic aspect of reward
management which, as a consequence, has no longer to be seen and investigated in the
limited sense of strategic pay, concept which could even be conceptually difficult to
support nowadays, but once again in a broader and more extensive way.
Total reward can basically be defined as the holistic good that a work experience can
provide an individual. Strictly speaking, total reward packages can considered as a
blended combination of both financial and non-financial rewards where the synergetic
outcome provided by the bundling approach can enable employers to achieve long-
lasting results in terms of retention, engagement and motivation. Beyond these more
immediate aims pursued by total reward, can be also identified additional, less obvious
objectives which employers might attain having recourse to this type of approach,
namely supporting organizational strategy and culture.
To put it in a nutshell, total reward is what an individual receives for working with an
organization (Kantor and Kao, 2004). More extensively, Armstrong (2010) defines tota