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Rethinking total rewards for the post-COVID era

Our research and experience highlights three guiding principles for designing a total rewards philosophy.
Sabrin Chowdhury

Supports organizations on a range of strategy and talent topics and is an expert on redesigning performance management, linking talent to value, and advancing diversity, equity, and inclusion

Neel Gandhi

Advises leading organizations on how to strengthen their talent-management capabilities and build an HR function that operates as a true strategic partner and value driver for the business

As organizations navigate performance management amid the COVID-19 crisis, a key part of their strategy should be to revise total rewards to reflect changes to both financial and non-financial incentives. Non-financial rewards will become increasingly significant as organizations seek to retain talent with flexibility in a post-COVID workplace. Total rewards have also taken on increasing importance given the cultural context and conversation around equity. The current disruption provides a unique opportunity for organizations to holistically rethink their total rewards philosophy.

A total rewards package can include fixed pay, variable pay, annual cash bonus, and long-term wealth creation through various incentives. It also covers benefits like health and retirement, non-cash compensation like transportation or educational stipends, and non-financial rewards like training, flexibility programs, and leave. More importantly, total rewards is the strategy and set of principles that govern these offerings—the “why” behind the “what.”

Organizations must demonstrate that they have structured their rewards fairly by transparently communicating the link among business performance, individual performance, and rewards. While our focus here is on salaried employees, the same principles apply for hourly non-exempt workers. Our research and experience in transforming major organizations’ performance management highlights three guiding principles for designing a total rewards philosophy.

  1. Enable business strategy and performance. Organizations should be clear about what outcomes they want to incentivize. These outcomes will determine what rewards elements they prioritize. The enterprise strategy should also inform what metrics determine bonus-pool funding and allocation across business units.

    Organizations are most successful when they review the total rewards philosophy whenever there is a significant shift in enterprise strategy to ensure that rewards enable the strategy. In the absence of strategic changes, review on a regular cadence to ensure the ability to attract, motivate, and retain top talent.

  2. Have a clear employee value proposition with differentiated rewards to attract talent and drive performance. Rewards should clearly link to talent ratings, and the same principles of performance management apply. Focus on rewarding clear over-performers while developing others instead of trying to differentiate the broad middle. Managers should de-couple compensation from developmental feedback and leverage intrinsic motivators such as recognition and non-financial rewards.

    Decide how rewards will contribute to your overall employee value proposition in the talent marketplace. A “premium package” organization may offer top-tier compensation and benefits across the board, while others may focus on overdelivering only in areas that link to their strategy or purpose. For example, a large financial services institution provided above-market retirement benefits—both retirement funding and education—to reinforce their purpose of providing financial wellness to all.

    Segments that may require different rewards structures include agile teams, which may have team-based incentives in lieu of individual incentives. Organizations are also increasingly paying for skill building/competencies as part of their rewards packages to both attract and grow the talent needed to deliver their future strategy. Rewards may vary with different benchmarks for certain business units or skill pools, long-term incentives above a certain level, or different bonus structures for critical roles.

  3. Promote equity and fairness through transparency. Ensure equitable design of total rewards for all populations, and check this regularly through pay equity analysis. Ensure benefits support all populations (e.g., LGBTQ+ parental leave), and conduct focus groups with diverse employees to ensure these benefits meet their needs.

Organizations should also determine how much discretion managers have in determining rewards. A formulaic approach helps to eliminate bias and enable transparency, but takes power away from the manager.

Organizations that keep these principles in mind while designing and implementing total rewards will be better positioned to attract and retain top talent in a workforce that is increasingly demanding flexibility and equity.

The authors would like to thank Bryan Hancock, Bill Schaninger, and Casey Gardiner for their meaningful contributions to this post.

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