What is total rewards? Understanding the modern compensation approach

A few decades ago, a decent paycheck and basic health insurance were enough to keep employees happy. However, those days are long gone — and companies still staying true to that mindset are watching their best talent walk out the door.

Total rewards isn't just another HR buzzword. It's a practical response to a simple truth: people are complicated, and what motivates them is equally complex. This approach recognizes that your engineering manager might stay for the challenging projects and growth opportunities, while your marketing specialist might value the flexibility that allows them to pursue creative passions outside work. One-size-fits-all compensation simply doesn't cut it anymore.

This article peels back the curtain on total rewards strategies that actually work. You'll find straight talk about integrating the elements that matter most — from competitive pay and benefits to meaningful work and genuine recognition. We've gathered insights from HR professionals that transformed their approach to compensation and distilled their experiences into practical advice you can implement immediately.

Key takeaways

• Total rewards is a modern compensation strategy that goes beyond salary to include benefits, recognition, and career development.
• Key trends in 2025 include personalization, flexible benefits, financial wellness, mental health support, and social responsibility initiatives.
• A strong total rewards strategy covers five areas: compensation, benefits, work-life balance, recognition, and performance management.
• Companies using total rewards see higher employee engagement, improved retention, and stronger employer branding.
• Regular evaluation and employee feedback ensure rewards stay competitive, relevant, and aligned with business goals.
• Forma simplifies total rewards with flexible benefits, lifestyle spending accounts, and employee-first solutions — <span class="text-style-link text-color-blue" fs-mirrorclick-element="trigger" role="button">schedule a demo today</span>

What is total rewards?

Total rewards is a comprehensive approach to employee compensation that goes beyond base salary and traditional benefits. It encompasses all the monetary and non-monetary elements that contribute to an employee's overall experience and satisfaction at work.

By taking a total rewards perspective, you acknowledge that employees value different aspects of their compensation package. Some may prioritize financial stability, while others may place more emphasis on work-life balance or career development opportunities.

When designing a total rewards package, HR considers factors such as market competitiveness, organizational culture, and workforce demographics. 

Emerging trends in total rewards in 2025

As the workforce evolves and employee expectations shift, total rewards strategies must adapt to stay competitive. Here are some of the latest trends shaping the future of total rewards:

Personalization

One-size-fits-all rewards packages are becoming obsolete. Employees want rewards that align with their individual preferences and life stages. This might include offering a choice between different health plans, providing flexible work arrangements for parents or caregivers, or allowing employees to select their own mix of benefits from a menu of options.

Personalized rewards show employees that you value their unique needs and contributions. By tailoring your offerings to individual preferences, you can boost engagement, retention, and job satisfaction.

Flexible benefits

Flexible benefits go hand-in-hand with personalization. Instead of offering a fixed set of benefits, many employers are giving employees more choice and control over their rewards package.

This might include allowing employees to allocate a certain amount of money across different benefits categories, such as health insurance, retirement savings, or professional development. Companies are offering Lifestyle Spending Accounts that employees can use for a wide range of expenses, from gym memberships to pet insurance.

The key is to provide a range of options that meet the diverse needs of your workforce while still aligning with your overall business goals and budget.

Non-traditional employee benefits

From pet-friendly offices to on-site massages, non-traditional benefits are becoming increasingly popular as a way to stand out in a competitive job market. These perks show that you care about employees' overall well-being and quality of life, not just their productivity at work.

Some examples of non-traditional benefits include:

• Student loan repayment assistance
• Fertility benefits
• Sabbaticals or extended leave programs
• Volunteer time off
• Concierge services
• On-site childcare or eldercare support

The specific offerings will depend on your company culture and employee demographics. The goal is to provide benefits that enhance the employee experience and make your organization a great place to work.

Mental health and well-being support

Mental health has become a top priority for many organizations in the wake of the COVID-19 pandemic. With increased stress, anxiety, and burnout among employees, employers are recognizing the need to provide robust mental health support as part of their total rewards package.

This might include offering an employee assistance program (EAP) that provides confidential counseling and referral services. It could also involve providing access to mental health apps, mindfulness training, or stress management workshops.

Some companies are even offering "mental health days" or expanding their paid time off policies to include mental health leave. The key is to create a culture that prioritizes employee well-being and provides the resources and support needed to maintain good mental health.

Financial wellness

Financial stress can have a major impact on employee well-being and productivity. That's why many organizations are incorporating financial wellness programs into their total rewards offerings.

This might include providing access to financial planning services, offering educational workshops on topics like budgeting and saving for retirement, or even providing emergency financial assistance for unexpected expenses.

Some companies are also exploring innovative benefits like student loan repayment assistance or early wage access programs that allow employees to access a portion of their earned wages before payday.

Social responsibility

Employees, particularly younger generations, want to work for organizations that align with their values and make a positive impact on society. That's why many companies are incorporating social responsibility initiatives into their total rewards strategies.

This might include offering paid time off for volunteering, matching employee donations to charitable organizations, or sponsoring community service events. It could also involve aligning employee rewards with sustainability goals, such as offering incentives for using public transportation or reducing waste.

By demonstrating a commitment to social responsibility, you can attract and retain employees who share your values and want to make a difference in the world.

Essential components of a total rewards strategy

These five elements form the foundation of a complete rewards package that speaks to what actually drives employee satisfaction and commitment.

1. Compensation

Compensation is a foundational element of any total rewards package. It includes base pay, which is the fixed salary an employee receives, as well as variable pay, such as bonuses or commissions based on individual or company performance. 

Equity compensation, like stock options or restricted stock units, can also be part of the mix, particularly for executive-level roles or in startup environments.

When determining compensation levels, consider factors such as market data, internal equity, and the employee's skills and experience. Conducting regular salary benchmarking helps ensure your compensation remains competitive.

2. Benefits

Benefits are another core component of total rewards. Health insurance is a standard offering, with many employers providing a range of plans to suit different needs and budgets. 

Retirement plans, such as 401(k)s with employer matching, help employees save for the future. Paid time off, including vacation days, sick leave, and personal days, supports work-life balance and employee well-being.

Other benefits to consider include dental and vision coverage, life and disability insurance, and health savings accounts. Wellness programs, such as gym memberships or stress management resources, can also fall under the benefits umbrella.

3. Work-life effectiveness

Flexible work arrangements, such as remote work options or flexible schedules, can be a powerful addition to your total rewards package. Employee assistance programs provide confidential counseling and resources for mental health, financial planning, and other personal challenges.

Paid parental leave, eldercare support, and backup childcare are other examples of benefits that contribute to work-life effectiveness. By offering these types of programs, you demonstrate your commitment to your employees' overall well-being.

4. Recognition

Recognition is a key driver of employee engagement and motivation. Formal recognition programs, such as years of service awards or employee of the month designations, celebrate significant milestones and achievements. Informal recognition, like a thank-you note or public shout-out, can be just as meaningful.

Spot bonuses or other monetary rewards can also be part of your recognition strategy. The key is to ensure recognition is timely, specific, and aligned with your company values.

5. Performance and talent management

Total rewards isn't just about what you offer employees today – it's also about investing in their future growth and development. Performance management, including goal setting and regular feedback, helps employees understand expectations and track their progress. Talent management encompasses succession planning, leadership development programs, and other initiatives designed to build your talent pipeline.

By offering employee incentive programs like tuition reimbursement, professional development stipends, or mentoring programs, you support your employees' career aspirations while also building critical skills for your organization.

Advantages of implementing a total rewards approach

Implementing a total rewards approach offers several key advantages for your organization. 

• Attract and retain Talent: First and foremost, it helps you attract and retain top talent in a competitive job market. When you offer a comprehensive package that includes competitive compensation, benefits, and growth opportunities, you position yourself as an employer of choice.
• Improve employee job satisfaction: A well-designed total rewards strategy also enhances employee engagement and satisfaction. By addressing the diverse needs and preferences of your workforce, you demonstrate that you value their contributions and well-being. This, in turn, leads to higher job satisfaction, productivity, and loyalty.
• Reduce administrative costs: Total rewards also allow you to optimize your HR costs by strategically allocating resources. Instead of offering a one-size-fits-all package, you can tailor your offerings to the needs and preferences of different employee segments. This ensures you're getting the most bang for your buck while still meeting the needs of your diverse workforce.

The value of a total rewards package for an employer goes beyond just the financial benefits. A comprehensive total rewards strategy can also help you:

• Differentiate your employer brand in a crowded job market
• Foster a culture of recognition and appreciation
• Drive desired behaviors and performance outcomes
• Improve employee health and well-being, leading to lower healthcare costs and absenteeism
• Enhance communication and transparency around compensation decisions

Of course, designing and implementing a total rewards strategy takes time and effort. You'll need to gather data on employee preferences, benchmark against competitors, and align with stakeholders across the organization. 

But the payoff, in terms of talent attraction, retention, and engagement, is well worth the investment.

How to design a total rewards program

Designing a total rewards program isn’t just about offering more perks. It’s about creating a well-balanced strategy that aligns with employee needs and business goals.

Assess organizational needs and goals

Start by assessing your organizational needs and goals. What are your key business objectives? Are you looking to drive innovation, improve customer satisfaction, or expand into new markets? Your total rewards program should align with and support these strategic priorities.

Consider your company culture and values as well. If work-life balance is a core value, for example, your total rewards package should include flexible work arrangements and generous paid time off.

Conduct market research

Next, conduct market research to benchmark your compensation and benefits against industry standards. This will help ensure you remain competitive in attracting and retaining top talent.

Look at salary surveys and benefits reports for your industry and geographic location. Consider factors such as company size, revenue, and growth stage when selecting peer organizations to benchmark against.

Gather employee feedback

Don't forget to gather input from your employees as you design your total rewards program. Conduct surveys or focus groups to understand their preferences and needs.

What do they value most in a compensation package? Are there any gaps in your current offerings? Use this feedback to prioritize the elements of your total rewards program.

Develop a comprehensive package

Based on your organizational goals, market research, and employee feedback, develop a comprehensive total rewards package that includes a mix of monetary and non-monetary elements.

Consider including base salary, bonuses, health insurance, retirement plans, paid time off, flexible work arrangements, professional development opportunities, and recognition programs.

Tailor your offerings to different employee segments as needed. For example, you might offer student loan repayment assistance to attract and retain millennial talent, or enhanced parental leave benefits to support working parents.

Evaluate and adjust regularly

Finally, remember that your total rewards program is not a set-it-and-forget-it initiative. Regularly evaluate the effectiveness of your program and make adjustments as needed.

Monitor metrics such as employee engagement, turnover rates, and benefits utilization. Conduct regular market assessments to ensure your offerings remain competitive.

Gather ongoing feedback from employees and managers on what's working well and what could be improved. Use this data to continuously refine and optimize your total rewards strategy.

Designing a comprehensive total rewards program takes effort, but the payoff in terms of talent attraction, retention, and engagement is well worth it. By following these steps and tailoring your approach to your unique organizational needs and goals, you can create a compelling employee value proposition that sets you apart in the job market.

Are total rewards worth it?

Absolutely. A well-designed total rewards program goes beyond salary to create a work environment where employees feel valued, motivated, and committed for the long haul. Companies that invest in competitive pay, flexible benefits, career development, and meaningful recognition see higher engagement, lower turnover, and stronger business performance. Total rewards aren’t just about giving more. They’re about giving smarter benefits, ensuring employees get the support and incentives that matter most to them. When done right, they’re not just worth it  — they’re essential for attracting and retaining top talent in today’s workforce.

Forma offers a tailored total rewards solution that aligns with your organization’s goals and addresses diverse employee needs. As the workforce evolves, companies that prioritize flexibility, personalization, and employee well-being will have a competitive edge in attracting and retaining top talent. With Forma, you can build a modern compensation strategy that not only enhances job satisfaction but also strengthens company culture and long-term employee loyalty.

By integrating benefits such as Lifestyle Spending Accounts, pre-tax savings programs, and professional development stipends, Forma empowers employees to choose rewards that best suit their unique needs. 

This level of customization fosters a more engaged workforce, reduces turnover, and improves overall productivity. Additionally, Forma’s intuitive platform simplifies benefits administration, making it easy for companies to manage their total rewards program efficiently.

Investing in a well-rounded total rewards strategy is essential for companies that want to thrive in today’s competitive job market. <span class="text-style-link text-color-blue" fs-mirrorclick-element="trigger" role="button">Schedule a demo</span> with Forma today to learn how we can help.

*This document is for informational purposes. Forma is not engaged in the practice of law. Nothing contained herein is intended as tax or legal advice nor to replace tax or legal advice from counsel. If you need tax or legal advice, please consult with counsel or a certified tax professional.