1

SPHRi Functional Area 04

TOTAL REWARDS

International Human Resource Certification Institute

IHRCI
IHRCI ©
© www.ihrci.org
www.ihrci.org
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Senior Professional in Human Resources – International (SPHRi) Workbook

Module Four: Total Rewards

2024 Edition

Copyright © 2024 by International Human Resource Certification Institute

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www.ihrci.org
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Introduction

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Table of Contents
Introduction ................................................................................................................................ 3
Table of Contents........................................................................................................................ 4
Part One: Total Rewards Program .............................................................................................. 6
1. Total Rewards Framework .............................................................................................. 6
1.1. Compensation ..................................................................................................... 7
1.2. Benefits.............................................................................................................. 10
1.3. Work-Life Effectiveness (WellBeing) .................................................................. 13
1.4. Recognition ........................................................................................................ 14
1.5. Development ..................................................................................................... 16
1.6. External Influences ............................................................................................ 17
1.7. Internal Influences............................................................................................. 18
1.8. HR Strategy ........................................................................................................ 19
1.9. Inspiration, Commitment, Productivity ............................................................. 20
1.10. Employee Experiences..................................................................................... 21
1.11. Organizational Performance............................................................................ 23
2. Total Rewards Implementation .................................................................................... 25
2.1. Total Rewards Considerations ........................................................................... 25
2.2. Total Rewards Benchmarking ............................................................................ 28
2.3. Total Rewards Optimization .............................................................................. 29
2.4. Total Rewards Governance ................................................................................ 32
2.5. Total Rewards Communication .......................................................................... 34
2.6. Total Rewards Implementaiton Process ............................................................ 37
3. Pay Policy and Philosophy ............................................................................................ 39
3.1. Match the market .............................................................................................. 40
3.2. Lead the market ................................................................................................ 41
3.3. Lag the market ................................................................................................... 41
3.4. Use a combination of options ........................................................................... 42
3.5. Crafting Effective Job Grades (Job Leveling) ...................................................... 42
4. Executive Compensation .............................................................................................. 44
4.1. Executive vs. Employee Compensation ............................................................. 44
4.2. Key Components of Executive Compensation................................................... 45
4.3. Governance and Executive Compensation ........................................................ 46
5. Equity Compensation ................................................................................................... 48
5.1. Benefits of Equity Compensation ...................................................................... 48
5.2. Equity Compensation Terminology ................................................................... 49
5.3. Types of Equity Compensation .......................................................................... 50
Part Two: Incentive Programs .................................................................................................. 56
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1. Variable Pay .................................................................................................................. 56

1.1. Individual ........................................................................................................... 56
1.2. Group / Team ..................................................................................................... 57
1.3. Organizational ................................................................................................... 59
1.4. Advantages of Variable Pay ............................................................................... 60
1.5. Disadvantages of Variable Pay ........................................................................... 62
1.6. Fixed Pay vs. Variable Pay .................................................................................. 63
2. Employee Incentive Programs ...................................................................................... 64
2.1. Financial Incentives ........................................................................................... 65
2.2. Non-Financial Incentives ................................................................................... 65
2.3. Performance-Based Incentives .......................................................................... 66
2.4. Goal-Based Incentives ....................................................................................... 66
2.5. Skill-Based Incentives ........................................................................................ 67
2.6. Recognition-Based Incentives ........................................................................... 67
3. Employee Benefits ........................................................................................................ 67
3.1. Importance of Employee Benefits and Perks .................................................... 68
3.2. Types of Employee Benefits .............................................................................. 69
3.3. Flexible Benefit Plan .......................................................................................... 73
3.4. Strategic Aspects of Employee Benefits ............................................................ 75
Part Three: Wellbeing Programs .............................................................................................. 78
1. Employee Wellbeing ..................................................................................................... 78
1.1. Employee Health, Welfare, Wellness, and Wellbeing ....................................... 78
1.2. The Elements of Wellbeing................................................................................ 79
1.3. The Benefits of Willbeing .................................................................................. 82
2. Health Organization Maturity Model ........................................................................... 83
2.1. Level 1: Employee Safety ................................................................................... 83
2.2. Level 2: Employee Wellbeing............................................................................. 84
2.3. Level 3: Healthy Work........................................................................................ 84
2.4. Level 4: Healthy Organization ............................................................................ 84
3. The Healthy Organization Framework .......................................................................... 85
3.1. Physical Health .................................................................................................. 86
3.2. Mental Wellbeing .............................................................................................. 86
3.3. Financial Fitness ................................................................................................ 86
3.4. Social Health and Community Service .............................................................. 87
3.5. Safe Workplace .................................................................................................. 87
3.6. Healthy Culture.................................................................................................. 87
3.7. Technology and HR Capabilities ........................................................................ 88
Reference.................................................................................................................................. 89
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Part One: Total Rewards Program

1. Total Rewards Framework

Total rewards encompass a blend of advantages, compensation, and acknowledgments

bestowed upon employees by their respective organizations. These contain remunerations
like wages and bonuses and non-monetary elements such as recognition, workplace
flexibility, and career advancement opportunities. WorldatWork offers a succinct definition
for this emerging concept, stating, 'Total rewards include all that an employee perceives as
valuable resulting from their employment relationship.'

Moreover, 'total rewards' can also denote the HR function or department responsible for
managing compensation and benefits or the holistic intrinsic and extrinsic benefits an
employee perceives.

Source: worldatwork.org

'compensation' encompasses all financial remunerations and tangible benefits provided to

employees as part of their employment arrangement. It can also refer to monetary
compensation for individuals who have experienced harm or injury. Some HR authors
prefer to use the term 'remuneration' interchangeably with 'compensation.' While
compensation often refers to regular salary or wage payments, remuneration encompasses
a broader spectrum, including periodic payments as well as other non-monetary perks. It
represents the entire package extended to an employee during their tenure, containing
monetary elements like salary, overtime pay, vacation pay, bonuses, and performance-
related incentives. Non-monetary benefits include company vehicles, medical or hospital
insurance, housing, pension or retirement schemes, family support programs, childcare
services, subscriptions, and other perks.
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One of the earliest models for understanding Total Rewards originated from WorldatWork,
formerly known as the American Compensation Association. This model conceptualized
more than two decades ago and still available on WorldatWork's website, situates the Total
Rewards strategy at its core, flanked by influencers on one side and outcomes on the other.
The strategic tactics emphasize compensation, well-being, benefits, development, and
recognition, to theoretically foster increased productivity, commitment, and motivation.

1.1. Compensation

Pay an employer provides an employee for services rendered (i.e., time, effort, skill).
This includes both fixed and variable pay tied to performance levels.

1.1.1. Fixed Pay

Fixed pay, or base pay, is nondiscretionary compensation that does not vary according
to performance or results achieved. It’s usually determined by the organization’s
philosophy and pay structure.

Base Pay

Fixed or base pay is the compensation paid to an employee for performing a specific
job. The definition of base pay can vary by country. Base pay levels need to consider
variations in equivalent monthly salaries vary by country. The bottom line to fixed pay
practices need to be based on a competitive strategy for each country. Types of Base
pay include:

Salary

A salary is a predetermined, fixed amount of money paid regularly by an employer to

an employee, usually on a monthly or annual basis, regardless of the number of hours
worked or specific tasks performed, as compensation for their position or job role.

Wage

A wage is a fixed payment or compensation that is typically provided to an employee

on an hourly, daily, or piecework basis in exchange for their labor or services
rendered.

The main difference between salary and wage is that a salary is a fixed, regular
payment typically paid on a monthly or annual basis, while a wage is a variable
payment often based on hourly, daily, or piecework rates tied to the number of hours
worked.
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Nonexempt

“Nonexempt" refers to employees who are not exempt from labor laws governing
minimum wage, overtime pay, and other regulations. Nonexempt employees are
eligible for overtime pay when they work more than a specified number of hours in a
workweek, typically 40 hours in many jurisdictions.

Hourly rates

"Hourly rates" refer to the compensation method where employees are paid a set
amount for each hour worked. Hourly employees receive a wage for every hour they
work, and their pay is directly tied to the number of hours they put in. These rates
can vary depending on factors like the employee's job role, location, and any
applicable overtime rates. Hourly rates are common for nonexempt workers who are
eligible for overtime pay.

Piece rate

Piece rate is a method of compensation where employees are paid based on the
quantity or number of items they produce, tasks they complete, or units they deliver.
Instead of receiving an hourly wage or fixed salary, workers earn a set amount for
each unit or piece of work they successfully produce or deliver. Piece rate
compensation is often used in industries where production output can be easily
measured and quantified, such as manufacturing, agriculture, and certain service
sectors. It provides an incentive for employees to work efficiently and increase their
productivity because their earnings are directly tied to their output.

1.1.2. Variable Pay

Incentive or Variable pay, also known as pay at risk, is compensation that is

contingent on discretion, performance or results achieved. Much of the innovation in
compensation is occurring in the variable pay element. Companies are making
greater use of variable pay programs by expanding them to a significantly broader
portion of the workforce that they have in the past. These schemes are adopted by
many corporations in order to improve the employee morale and increase the
motivation to work for the employees. Based on performance measures and metrics
defined by the human resources of the specific organization incentive plans are
devised and the specific mode of incentive is decided.

Bonus or Incentives
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Bonuses or Incentives are delivered through plans that predetermine a performance

and reward schedule. The incentive can be paid in an accounting period (month,
quarter, year, multi-year) or upon an event (reaching an objective, completing a
project, etc.). Organizations that seek to create a closer link between employee
compensation and the risks of doing business have increased the prevalence of
group/team incentives.

Commissions

Commission is a sum of money that is paid to an employee upon completion of a

task, usually selling a certain amount of goods or services. Commission may be paid
as percentage of the sale or as a flat dollar amount based on sales volume.
Employers often use sales commissions as incentives to increase worker productivity.
A commission may be paid in addition to a salary or instead of a salary. Commissions
are cash payments, based on predetermined performance and reward schedule.
They are typically based on sales or profit margin on those sales. Commissions are
usually for sales employees. Sales incentive plans matched to type of responsibilities:
Customer identification, customer service or customer persuasion.

Profit-Sharing Plans

Profit- Sharing is a form of variable pay provided to all employees based on the
profits of the company. Companies usually have predetermined goals and formulas
for determining the amount that will be allocated to employees. Profit- Sharing is
typically implemented to achieve employee participation and identification with the
organization’s success.

Performance-Sharing Plans

A variable pay plan bases rewards on the performance of a combination of

quantitative and/or qualitative measures. The objective increase employee
identification with the organization’s success and increase employee understanding
of what is important to the organization and communicate the basis upon which
success is measure.

1.1.3. Direct / Indirect Compensation

Direct compensation refers to the monetary rewards that employees receive directly
for their work. It includes components such as base salary, bonuses, allowances,
overtime pay, and any other cash payments made to employees as part of their
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regular compensation package. Direct compensation is the core element of an

employee's earnings and is typically received in each pay cycle.

Indirect compensation, on the other hand, encompasses the non-monetary benefits

and rewards that employees receive as part of their overall compensation package.
These benefits may include health insurance, retirement plans, paid time off, training
and development opportunities, company-provided vehicles, flexible work hours,
wellness programs, and other non-cash perks. Indirect compensation contributes to
an employee's overall well-being and job satisfaction, even though it is not received
in the form of direct cash payments.

1.2. Benefits

Programs an employer uses to supplement the cash compensation that employees

receive. These health, income protection, savings and retirement programs provide
security for employees and their families

1.2.1. Healthcare

Healthcare systems are influenced by the beliefs, values, culture and perceptions in
different regions regarding the role of government in providing health care to its
citizens. The employers commonly supplement the government health programs
with health care plans influenced by corporate objectives, competitive practices and
the limitations of government programs. Limitations government-sponsored
programs may include restricted access, limits on services/facilities, payments,
reimbursement and gaps in coverage.

1.2.2. Welfare

The factors that influence health and retirement benefits may also affect other
benefits such as life insurance, disability and time off. Depending on the type of
benefit, statutory requirements, coordination with government programs, collective
bargaining agreements, and other influences may shape or define the final program,
limiting employer flexibility in plan design. In addition, offering wellness programs to
employees is very useful for increasing satisfaction and a healthy life.

1.2.3. Retirement and Investment Plans

Qualified retirement plans encompass various retirement savings arrangements

designed to help employees save for their retirement years. These plans are
structured to provide financial security to employees once they retire from the
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workforce. Among these qualified retirement plans, the two primary categories are
traditional defined benefit pension plans and defined contribution plans, each with its
distinct features:

Defined Benefit Plans

A defined benefit plan is formulated based on a specific formula, which typically

considers an employee's compensation and years of service with the employer. In a
defined benefit plan, employees are promised a predetermined retirement benefit,
often expressed as a percentage of their final average salary multiplied by the number
of years they have worked for the company. This type of plan aims to provide more
substantial retirement benefits to employees who have longer tenure with the
organization.

Defined Contribution Plans

In contrast, a defined contribution plan is characterized by contributions made by

both the employee and the employer into individual participant accounts. The
ultimate retirement benefit in a defined contribution plan depends on the amount
contributed and the investment performance of those contributions over time.
Employees can manage and invest their individual accounts within the plan's options.
The final retirement benefit is determined by the total contributions made over an
employee's career and the investment returns those contributions have generated.

Hybrid Plans

Hybrid plans, as the name suggests, combine elements of both defined benefit and
defined contribution plans. They aim to provide some level of retirement benefit
security while allowing for individual account management and flexibility. One
common type of hybrid plan is the cash balance plan, which provides a fixed annual
contribution to an individual account and guarantees a minimum interest rate on
those contributions.

In summary, qualified retirement plans offer employees a range of options for saving
and investing for their retirement. Defined benefit plans promise specific benefits
based on a formula, defined contribution plans rely on contributions and investments,
and hybrid plans blend features from both approaches to provide retirement income
security and flexibility. The choice of plan type often depends on an organization's
goals, employee demographics, and financial resources.
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1.2.4. Other benefits

Housing Allowance

A housing allowance is an amount provided by an employer to assist an employee

with the cost of housing or accommodation. It is typically given as an additional
financial benefit on top of the employee's regular salary, and its purpose is to help
cover rent or mortgage expenses.

Transportation Allowance

A transportation allowance is a financial benefit provided to employees to assist with

their commuting costs. It is often given to cover expenses related to public
transportation, fuel, or other commuting methods. This allowance can help ease the
financial burden of getting to and from work.

Meal Allowance

A meal allowance is a stipend or reimbursement provided by an employer to

employees to cover the cost of meals during working hours, especially when they are
required to work away from their usual workplace or during business trips. It is
intended to ensure that employees have access to meals while on duty.

Phone Allowance

A phone allowance is a monetary provision offered to employees to help cover the

costs associated with their personal mobile phones or communication devices. It can
assist employees in offsetting expenses related to phone plans, calls, and data usage
that are necessary for work-related communication.

Training Allowance

A training allowance is an amount provided by an employer to employees who are

undergoing training or professional development programs. This allowance is
intended to support employees by covering expenses such as course fees, study
materials, travel, and accommodation related to their training or education.

1.2.5. Flexible benefits

Flexible benefits are the approach to benefits in an increasing number of American

organizations. In essence, employees are typically given choices, up to a specific dollar
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limit, among a series of options for their benefits, including such things as pension
contributions, health insurance options, dental insurance, life insurance, etc. MNEs
are beginning to examine flex benefits for their global operations.

Issues such as tax treatment of benefits, private versus state health care, employee
expectations and culture, non-standardized social benefits from country to country,
and varying company structures will need to be addressed in order to design flexible
benefit packages that might be used throughout a MNE. Nevertheless, such an
approach may help simplify worldwide complete compensation systems for
multinational firms.

1.3. Work-Life Effectiveness (Wellbeing)

A specific set of organizational practices, policies, and programs, plus a philosophy

that actively supports efforts to help employees achieve success at both work and
home. Work-Life Balance (WLB) is an umbrella term used to describe a variety of
benefit-related initiatives to help employees effectively manage work, family, and
personal life without extreme stress or negative impact. Many organizations report
that balancing work and family has overtaken other benefit and compensation items
as a key factor in employee satisfaction surveys. WLB is composed of offerings in the
Total rewards package that address the unique individual needs of the employee.
These offerings are important to the employee but may be less tangible than
compensation and benefits. Categories that promote a harmonious work-life balance
encompass various aspects, and some of these supportive categories include:

1.3.1. Caring for Dependents

This category pertains to initiatives and policies that assist employees in managing
their responsibilities towards dependents, such as children, elderly parents, or family
members with special needs. Example: Offering on-site daycare facilities or
subsidizing childcare costs for working parents.

1.3.2. Supporting Health and Wellness

Focusing on employee well-being, this category encompasses programs and

resources aimed at maintaining and improving physical and mental health. Example:
Providing access to gym facilities, offering wellness seminars, or promoting mental
health awareness through counseling services.

1.3.3. Creating Workplace Flexibility

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Workplace flexibility initiatives allow employees to adjust their work arrangements to

better suit their personal needs while fulfilling their job responsibilities. Example:
Implementing remote work options.

1.3.4. Flexible Work Hours

This category specifically addresses the flexibility in the timing of work hours,
enabling employees to adapt their schedules to fit their lives outside of work.
Allowing employees to choose their start and end times within certain limits,
accommodating early risers or those with other commitments.

1.3.5. Financial Support Programs

Financial support programs are designed to assist employees in achieving financial

stability and security. Example: Offering employee assistance programs (EAPs) to
provide financial counseling, loans, or financial planning services to help employees
manage their finances effectively.

Work/life programs and services intend to support the well-being of employees and
help them achieve a balance between their jobs, families, and personal lives. Some
organizations couch work/life programs in terms of diversity and corporate social
responsibility (CSR) initiatives. Others feature WLB as part of the organization's brand.
There are many compelling reasons for WLB. However, as with the success of other
organizational and global HR strategies, commitment and communication can make
or break success. Having work/life programs means little if employees are unaware of
them or the culture does not support the initiatives.

1.4. Recognition

Recognition is a vital element within the total rewards framework that involves
acknowledging and giving special attention to employee actions, efforts, behavior, or
performance that align with the organization's objectives and contribute to its overall
success. It serves as a powerful tool for motivating and engaging employees,
reinforcing desired behaviors, and promoting a positive workplace culture. Here are
key aspects and explanations of this component:

1.4.1. Acknowledgment of Employee Contributions

Recognition programs are designed to acknowledge and appreciate the valuable

contributions made by employees to the organization. These contributions can
encompass a wide range of actions, from achieving outstanding results on a project
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to demonstrating exceptional teamwork or consistently exhibiting desired behaviors

that align with the company's core values.

1.4.2. Alignment with Business Strategy:

Effective recognition programs are strategically aligned with the organization's

business strategy and goals. They reinforce specific behaviors and actions that drive
success, such as innovation, customer focus, teamwork, or performance excellence.

1.4.3. Formal and Informal Recognition

Recognition efforts can take various forms, including formal and informal methods.
formal recognition may involve structured programs, awards ceremonies, or incentive
schemes, while informal recognition can be as simple as a heartfelt "thank you" from
a manager or colleague.

1.4.4. Motivation and Engagement

Recognition has a profound impact on employee motivation and engagement. When

employees feel valued and appreciated for their contributions, they are more likely to
remain motivated, committed to their work, and willing to go above and beyond to
achieve organizational goals.

1.4.5. Fostering a Positive Work Culture

Recognition plays a crucial role in shaping and fostering a positive organizational

culture. It reinforces the importance of appreciating and celebrating successes,
which, in turn, boosts morale, teamwork, and a sense of belonging among
employees.

1.4.6. Diverse Recognition Methods:

Recognition efforts can encompass diverse methods, ranging from verbal praise,
written commendations, trophies, certificates, plaques, and symbolic awards to more
tangible rewards such as cash bonuses, gift cards, extra time off, or special events.

1.4.7. Continuous Feedback Loop

Effective recognition is an ongoing process that involves continuous feedback and

reinforcement. Managers and leaders play a pivotal role in providing regular
feedback, ensuring that recognition remains meaningful and relevant to the evolving
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needs of the workforce.

1.5. Development

The "Development" element within the total rewards framework is a critical

component aimed at fostering the growth, learning, and professional advancement of
employees within an organization. It encompasses a range of initiatives and
opportunities designed to enhance employees' skills, knowledge, and career
potential. Here's a comprehensive explanation of this component:

1.5.1. Skill Enhancement and Learning:

Development programs are strategically designed to improve employees' skills and

knowledge through a variety of learning opportunities. These opportunities can
include formal training sessions, workshops, access to educational resources,
mentorship programs, and on-the-job learning experiences.

1.5.2. Career Advancement

A pivotal aspect of development is to support employees in their career progression

within the organization. This can involve providing a clear career path, offering
opportunities for promotions, lateral moves, or cross-functional experiences, and
aligning individual development plans with the organization's evolving needs.

1.5.3. Professional Growth

The development component emphasizes the ongoing professional growth of

employees, aiding them in evolving within their roles and realizing their full potential.
This often includes opportunities for acquiring new certifications, attending
conferences, participating in leadership development programs, and engaging in skill-
building activities.

1.5.4. Feedback and Performance Evaluation

Central to the development process is the regular feedback and performance

evaluation. Employees receive constructive feedback on their performance,
strengths, and areas for improvement, enabling them to set and achieve
developmental goals.
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1.5.5. Individual Development Plans

Organizations often collaborate with employees to create individual development

plans (IDPs) tailored to their career aspirations and skill development needs. These
IDPs outline specific goals, actions, and timelines for personal and professional
growth, fostering a sense of ownership and commitment.

1.5.6. Leadership and Mentorship

Effective leadership and mentorship programs play a pivotal role in the development
component. Supportive leaders and mentors provide guidance, offer insights, and
create a culture of continuous learning and growth within the organization.

1.5.7. Alignment with Organizational Objectives

Development programs are strategically aligned with the organization's overarching

goals and objectives. This ensures that employees' growth and development efforts
are directly contributing to the achievement of business targets and the
organization's long-term success.

1.5.8. Retention and Engagement:

Offering development opportunities is a powerful tool for retaining and engaging

employees. It demonstrates an organization's commitment to employees' long-term
success, leading to higher job satisfaction, increased loyalty, and reduced turnover.

1.5.9. Adaptation to Change

In an ever-evolving business landscape, development initiatives assist employees in

adapting to new technologies, market trends, and changing job roles. They foster a
culture of agility, innovation, and resilience.

1.6. External Influences

External factors, including social norms, regulations, technology, market conditions,

and labor market dynamics, impact an organization's total rewards design. They set
the framework for compliance, skill requirements, market competitiveness, and
alignment with societal and economic trends.

1.6.1. Social Norms

Prevailing societal norms and values can impact reward design. For instance, as work-
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life balance becomes more valued in society, organizations may offer flexible work
arrangements to align with this norm.

1.6.2. Regulations

Legal and regulatory requirements, such as minimum wage laws or regulations

regarding health and safety benefits, directly influence reward structures and
compliance.

1.6.3. AI and Technology

Advancements in AI and technology can affect compensation through automation,

creating a need for upskilling or reskilling employees, which might impact reward
programs.

1.6.4. Product Market

Market conditions and competitiveness can influence total rewards. In industries with
high demand for skilled labor, organizations may offer more attractive packages to
retain talent.

1.6.5. Labor Market: The availability of labor, skill shortages, and regional labor
market conditions can impact compensation levels and benefits offered to attract and
retain employees.

1.7. Internal Influences

Internal factors, such as strategy, culture, workforce composition, inclusion efforts,

and leadership values, shape an organization's total rewards philosophy. These
factors guide how rewards are structured to support strategic goals, cultural values,
and the unique needs of the workforce.

1.7.1. Strategy

An organization's overall strategy shapes its total rewards approach. For example, a
company pursuing a differentiation strategy may emphasize unique benefits and
recognition to attract and retain top talent, while a cost-focused strategy may
prioritize competitive base salaries.

1.7.2. Culture

Organizational culture plays a crucial role in defining what types of rewards and
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recognition are valued by employees. A culture that promotes innovation may

emphasize non-monetary rewards, while a traditional culture might favor monetary
incentives.

1.7.3. Workforce

The composition of the workforce, including demographics and skills, influences

reward design. A multigenerational workforce may require a diverse range of
benefits, from healthcare for older employees to flexible work options for younger
ones.

1.7.4. Inclusion

An inclusive workplace may require rewards that cater to diverse needs, including
accommodations for employees with disabilities or benefits that address the needs of
various gender identities and cultural backgrounds.

1.7.5. Leadership

The leadership style and values of senior management can shape the total rewards
philosophy. Leaders who value employee development may invest in training and
career growth programs.

1.8. HR Strategy

Internal factors, including an organization's culture, structure, workforce composition,

and financial resources, wield substantial influence over HR strategy. For instance, a
company fostering an innovative and employee-centric culture is likely to prioritize
HR initiatives focused on talent acquisition, training, and career progression.
Conversely, businesses constrained by financial limitations may need to tailor their HR
strategies to optimize existing resources and manage labor costs effectively. On the
other hand, external factors encompass the broader economic, industry-specific, and
market conditions that exert an impact on HR strategy. Economic indicators like
inflation and unemployment rates can directly affect salary levels and benefit
packages. Furthermore, industry trends, competitive talent markets, and regulatory
shifts can shape the formulation of HR strategies. In a fiercely competitive job market,
organizations may find it necessary to augment their compensation and benefits
offerings to attract and retain high-caliber professionals.

Each of the four distinct HR strategies has a direct impact on an organization's total
rewards approach:
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1.8.1. Universalistic HR Strategy

Under this approach, where a "best practice" philosophy prevails, the total rewards
package is likely to prioritize consistency and alignment with the identified best
practices. This could result in a structured compensation system that emphasizes
performance-based pay, internal promotions, and standardized benefits. Total
rewards will reflect the belief that these practices universally enhance employee
performance and satisfaction.

1.8.2. Contingency or Fit HR Strategy

When an organization follows a contingency or fit HR strategy, the total rewards

system will be tailored to align with the specific needs and characteristics of the
organization. Vertical fit, which aligns HR with business strategy, may lead to variable
pay structures that reward behaviors and outcomes crucial to the business strategy.
Horizontal fit ensures that total rewards components, such as compensation,
benefits, and recognition programs, work cohesively to support HR policies and
practices.

1.8.3. Configurational HR Strategy

Organizations adopting a configurational HR strategy focus on creating synergy

between HR practices and business goals. The total rewards approach will emphasize
the alignment of compensation, benefits, and recognition programs with individual
behaviors and the overarching business strategy. The aim is to optimize performance
by creating a complete HR system where all elements reinforce each other to achieve
organizational objectives.

1.8.4. Resource-Based HR Strategy

In this strategy, people is considered a key resource for competitive advantage. The
total rewards system will prioritize recruiting, developing, and retaining high-quality
employees. Compensation and benefits will be designed to attract and retain top
talent, while other HR practices will support employee development and
engagement. The emphasis will be on maximizing the productivity and commitment
of employees to maintain their status as a strategic asset.

1.9. Inspiration, Commitment, Productivity

The combination of total rewards has a profound impact on employees' inspiration,

commitment, and productivity within an organization.