Transforming total rewards
The world of work is evolving — and with it, the value exchange between organizations and their people. Compensation and benefits are the largest expense for many companies, yet only 58% of employees feel their needs are being met. Total rewards can no longer be static or siloed. As AI, automation and emerging technology reshape how work gets done, they also redefine what workers value and expect.
At HR conferences this year, we examined the ongoing disruption of total rewards and how digital transformation is helping rewards teams adapt. Intelligent technology enables more personalized, responsive and equitable rewards ecosystems, but it also raises urgent questions about trust, transparency and fairness.
To capture the upside, rewards leaders must change the operating model: collaborate across HR, IT, finance and business functions to design for human-machine teaming, and treat rewards as a lever for talent, well-being and performance.
The forces reshaping total rewards
Macro-level shifts in work, trade and technology are amplifying the pressure on total rewards:
- Employers face growing worker expectations around fair pay, personalized rewards and consumer-grade digital experiences.
- Organizations demand clear evidence that rewards investments drive business outcomes such as productivity, retention and revenue.
- Rewards teams face unprecedented complexity — such as global footprints, skills-based roles, and hybrid work models — that challenge traditional rewards programs.
To better understand how these changes are fueling a rewards revolution, Mercer asked top rewards leaders from Global Fortune 500 companies how they’re navigating the current environment — and what they expect in the future. Through those discussions, we identified three strategic essentials that can elevate rewards teams to be influential, future-focused, and indispensable to the business.
The three strategic essentials
As organizations look to do more with less, Mercer analysis suggests 52% of rewards work is rules-based and can be automated. That’s an enormous opportunity to shift from transactional tasks to strategic impact. Before they can automate, rewards teams first need to simplify their systems and processes. Broken job architectures and salary reviews won’t magically become efficient with a shiny new tool.
By simplifying and automating transactional tasks, rewards teams free up capacity for the strategic and human-centric work that technology can’t handle — like creative problem-solving, stakeholder management, and designing rewards programs that resonate.
With automation freeing up time, how do we avoid headcount reductions and reinvest in rewards transformation? It’s about shifting from a cost center to a growth engine, and it starts with asking better questions: not, “How much are we paying,” but “What do we get in return?”
Leading rewards teams maximize both sides of the employer-employee value exchange. Through business fluency, predictive analytics, and outcome measurement, they align rewards programs to the broader business strategy to drive clear returns on investment (ROI) — such as revenue, performance and productivity.
Amid talent and skills shortages, rewards programs must also attract and retain talent. This requires a mix of pay fairness and transparency, benefits personalization, performance management and an enhanced employee experience. Digital transformation gives employers the power to bring these efforts to life.
The most effective rewards leaders build strong, cross-functional relationships across HR, IT, finance and the rest of the business. They keep pace with different stakeholders’ priorities, and they proactively join executive leadership in solving key business problems. That visibility helps secure the trust and buy-in required to drive meaningful change.
This kind of strategic partnership extends to the front lines. People leaders are often the main point of contact between rewards and the workforce, so they’re uniquely positioned to discuss rewards decisions — including how pay links to performance and career development. The best rewards teams empower managers to lead these discussions effectively.
Seven imperatives for transforming rewards
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Automate the essentials
- Engage in work design to identify, streamline and automate (or even eliminate) repetitive tasks.
- Establish strong governance and error-detection bots to reduce manual rework and risk.
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Pilot the extraordinary
- Test big ideas via small-scale pilots (such as skills-based pay in a competitive market).
- Pilot “always-on” salary reviews with AI-powered recommendations based on real-time market data.
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Get up-close and personal
- Combine HR data, employee listening, and benefits usage to create segmented, customizable reward bundles.
- Partner with HR colleagues to deliver a winning employee experience through rewards.
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Turn facts into feelings
- Translate analytics into compelling narratives that resonate with stakeholders and employees.
- Use AI and automation to facilitate data-driven insights, recommendations and decision-making.
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Expand your HRizons
- Upskill rewards teams in broader HR capabilities, perhaps via rotations with other teams.
- Create cross-functional squads for strategic initiatives that span several departments.
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Master the business
- Proactively share business impact reports with the executive committee.
- Facilitate routine strategy sessions to align with stakeholders’ business agendas.
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Become the value center
- Reframe rewards as an investment management function; allocate spend based on ROI.
- Build an analytics engine that links rewards decisions to key business results.
Embark on the transformation
Digital transformation is not a technology project; it’s a wholesale shift that turns rewards leaders into strategic performance architects. It’s about leading with streamlined systems and processes, tech-enabled efficiency and innovation, data-driven program design with clear ROI, and cross-functional partnerships with key stakeholders across the firm.
The result? A future-ready rewards function, a more agile workforce, and HR leaders who are seen as strategic, indispensable partners. The professionals who thrive tomorrow are the ones taking bold action today — because the rewards revolution isn’t coming, it’s already here.
Global Rewards Leader, Mercer
Global Leader, HR Digital Transformation & Technology Advisory, Mercer