You may already have a general understanding of how total compensation differs from a total rewards system, but sometimes, the terms are mistakenly interchanged. Here, we clear up any confusion between these two strategies and highlight the main differences between each.

Total Compensation

Many organizations use total compensation as a way to communicate the value of employment to their associates. The problem with using total compensation alone is that it doesn’t communicate the fullest possible value of compensation, because it typically only covers:

  • Base Pay
  • Bonuses
  • Equity

While total compensation may vary from one company to the next, these are typically the core components that most organizations choose to focus on.

Total Rewards

Total rewards consist of everything that total compensation covers (base pay, bonuses, and equity), as well as much more. Your total rewards program can encompass medical, dental, vision, and other health-related benefits, as well as any other employee perks you may offer.

Your total rewards program can also factor in retirement and/or 401(k) plans, legally-mandated programs such as long and short term disability, vacation, and travel and expense compensation.

Additionally, total rewards programs can incorporate your company policies. Ultimately, total rewards systems create a comprehensive valuation of all employee benefits and perks, thereby associating an actual number with all of the many benefits your company provides. It helps quantify items such as commuter benefits, time off, and other programs/policies that are typically less tangible. By communicating this information, you create better engagement with employees through honesty and consistency.

Speaking of consistency: total rewards systems take a more consistent approach than total compensation. Whereas total compensation is typically an annual event that tells the employee what they’ve already made, total rewards systems facilitate an ongoing approach by encouraging team members to access benefits-related information at any time. As a result, they begin to view their value proposition as reaching far into the future, instead of only a certain point in time.

You could even go as far as to replace your offer letters with a link to your total rewards system for prospective employees. That allows them to get a more thorough overview of everything that employment with your company will offer. In many cases, organizations only begin thinking about communicating total rewards after an associate is hired, but taking this proactive approach could make your organization a more attractive option than your competitors.