When devising a competitive pay policy for recruiting and retaining employees, companies need to utilize the Total Rewards Model - which is defined as “all of the tools available to the employer that may be used to attract, retain and motivate employees.” They include:

• Compensation: cash paid by an employer to its employees for services rendered.
• Benefits: health, welfare, income protection and capital accumulation programs provided by an employer that supplement cash compensation.
• Working Conditions: reward elements that are important to employees, but less tangible than compensation and benefits (e.g., performance recognition, work-life balance, developmental opportunities, company culture, etc.)

In designing a competitive pay policy, a company considers the relative emphasis of these three total rewards components to build its human capital investment strategy. If, for example, the organization emphasized compensation, it would position itself to compete for talent by offering employees base salaries and incentive payments that meet or exceed cash compensation levels offered by the competition.

As an offset to placing greater emphasis on cash compensation, the company might offer benefits that are less favorable than those of competitors. Although one element of the total rewards model may be emphasized, decisions must be made with regard to the company’s competitive stance on all three elements. Emphasis on one element versus another is a strategic decision based on company requirements to recruit needed employees. In the right combination, these elements can be used to craft a system for administering pay that helps accomplish the company’s strategic objections.