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Pandemic-Era Compensation: Handling Salary Decisions Through COVID-19

An HR guide to evaluating pay strategy, execution, and communications during a pandemic.

by Aimie Ye, SEO Manager @ GoCo

In the first several months of the pandemic, 94% of employers in a Mercer survey went ahead with salary increases that they’d already planned. However, according to a recent Gallagher study, 45% of employers have had to rethink pay increases for 2021. Though the new year has arrived, many employers are still confused about how to best handle compensation during COVID-19.

What does COVID-19 mean for compensation and HR? Read on for a review of the latest research and analysis. 

The Impact of COVID-19 on Compensation

Many organizations are facing dilemmas with compensation during COVID-19 that can be tough for compensation managers to navigate:

  • The need to decrease salaries and suspend bonuses in line with decreased revenue.
  • Postponement of salary increases and hiring freezes due to the economic impact and  uncertainty.
  • The desire to increase bonus pay for frontline workers in a time of crisis.
  • Finding compensation alternatives for commissioned employees during a recession.

At a time when many employees are doing more rather than less, HR is wrestling with the question of how to fairly pay them with limited resources. The only thing that feels certain is the uncertainty about what post-pandemic payment plans will look like. Thus, it’s vital to reevaluate compensation incentives for 2021 to avoid overpromising or losing crucial talent.

Coping Mechanisms and Solutions

Here are several ways that organizations can handle the uncertainties we’re all facing. Consider which post-pandemic payment options may be best for your company.

A shift to performance-based pay.

If you can’t apply a uniform increase to salaries during COVID-19, consider performance-based or shared profit pay. Variable pay appeals to many employers because budgets and revenue streams remain uncertain. Companies can enhance productivity by linking compensation to the performance of each team or line of business. This strategy is practical, transparent, and data-driven. If the additional funds are there, financial rewards can increase.

“More employers are leaning into variable pay models because this allows them to provide employees with a pay increase based on performance,” says CEO of Gallagher’s Benefits and HR Consulting Division, William F. Ziebell. If you’ve had to table your salary increases until your company rebounds, variable pay provides a good alternative. And as the economy bounces back, many employees and companies may prefer to keep this post-pandemic compensation model.

Change performance-based targets and maximum rewards.

If you already have a performance-based pay system, employees will likely understand if you need to change the maximum payments or the targets. You can keep the variable pay system in place but change the threshold for payment, giving out increased pay if the team meets 80% of a goal rather than 60%, for example. You can also put a cap on the maximum payout—at least temporarily. 

Focus on employees in critical roles.

If you have employees working in critical or frontline roles, you might consider providing additional compensation for them while limiting incentives for other staff. These highly specialized employees are essential to your talent pipeline and the success of your company. Shifting a limited budget towards retaining this talent will help your company survive and rebound post-pandemic.

Evaluate alternative incentives and perks.

It’s important to assess compensation with a total rewards perspective, beyond just monetary rewards. If compensation needs to decrease or stay the same, you may be able to offer less expensive but highly valued perks to support employees through these challenging times. For example, consider changing PTO policies to accommodate employees’ shifting (and unpredictable) needs during the pandemic. Implementing flexible HR software like GoCo can help make any policy changes easy, whether that be updating the amount of PTO provided or changing existing work policies. The HRIS can send out uniform updates and require acknowledgements from employees, so you know they’re in the loop on any company changes.

Offering non-monetary perks also shows you care and gives employees something valuable to them without breaking the bank. For instance, you can create flex-time policies that are more lenient than normal, provide parent-friendly options that help women stay in the workforce during the pandemic, or offer budget-friendly incentives like a subscription to online exercise classes. Improving access to mental health treatment is another welcome benefit, especially amidst the pandemic.

If you decide to update your employment policies, GoCo’s all-in-one platform allows you to easily send the necessary documents to all employees. Our Magic Docs also make updating your policies a breeze by auto-filling all the necessary information. And everything is 100% digital—which is more important now than ever.

Treat employees at all levels equally.

Some companies have wisely begun with senior leadership when tightening their compensation budgets. When employees know the C-suite’s incentives have changed, they’ll feel more accepting of changes to their own incentives.

Avoid making rash decisions like employee furloughs that could be hard to rebound from. The economy is likely to grow more stable in 2021, and having a strong and satisfied workforce will play a central role in bouncing back.

Tips for Strategizing

Smart strategizing will help you make the right post-pandemic compensation choices for your company. Here are some guidelines we advise following.

Develop agile compensation options.

Assess how much risk you face in your industry. If you’re in manufacturing, that risk might be much lower than if you’re in hospitality, for instance. Harvard has outlined four different risk levels that companies are facing in the pandemic—which one do you fall under?

  • Neutral/positive impact
  • Moderate negative impact
  • Significant negative impact
  • Fight for survival

According to a GoCo survey, COVID-19 has affected 60% of companies negatively, though just under 10% fall into the “fight for survival” category. According to Harvard, those facing a moderate negative impact may still have a robust incentive plan in place. Meanwhile, those experiencing significant negative effects may need to focus on discretionary incentives. This means incentives are given to specific employees if and when senior leadership determines the company can afford it.

Specify the scenarios under which different tiers of compensation would be necessary. Then, develop agile payment options that respond to each scenario. Create a flexible plan that allows you to unroll incentives depending on the conditions you’re facing throughout the year. Be careful not to over-promise—it’s better to increase rewards later than to dial back the ones you’ve already committed to.

Consider what your competitors are doing.

As workplaces increasingly go remote, employees have more options for places to work than ever. Pay careful attention to what your competitors are doing so you can ensure that you offer rewards and perks that beat the competition, even in these tough times.

Reevaluate past pay practices.

Look at past payment programs in your organization. Which ones did employees respond best to? Which ones had less of an impact? Learn from your own internal history.

Communicate thoroughly with employees.

Once you’re ready to share your compensation changes, clarify the terms and rationale of your decisions to employees. Communicate as thoroughly as possible about what they should expect so that payment doesn’t become just another source of uncertainty in their lives.

Provide resources and forms that employees can easily access and sign remotely and establish a process for collecting feedback. They’re more likely to respond positively to a change in incentives if you’re transparent, show concern for their wellbeing, and value their input. 

Take your industry into account.

How you cope and solve for salary and compensation related decisions through COVID-19 also depends on your industry. If you’re in a heavily impacted industry like airline, oil & gas, or food & beverage, your approach will be different than an industry like insurance or REITs. Keep up-to-date on industry-specific compensation guidance, and make sure to keep your employees informed the entire way.

Implementation

As you make adjustments to your compensation policies, use software that integrates the changes into your payroll. Companies are opting for automated HR for a multitude of reasons, and a whopping 68% of businesses plan to invest in an HR platform by 2022. By using an integrated payroll, HR, and communication platform like GoCo,  you’ll increase transparency, compliance, and administrative ease. 

Whatever choices you must make, be sure to remain open to feedback and understanding of employees’ concerns. Continue to expect uncertainty so you’re not blindsided by any new developments. And by balancing economics with empathy, you’ll make sure all your employees feel valued and rewarded for staying the course through difficult times.

Sources

Gallagher, “2020 Benefits Strategy and Benchmarking Survey Report”

https://www.ajg.com/us/benefits-strategy-benchmarking-survey-report/?utm_medium=Press_Release&utm_source=Misc&utm_campaign=GBS_2020_US_National_NA_NBS_Release

Harvard, “What to Do about Annual Incentive Plans in the Pandemic”

https://corpgov.law.harvard.edu/2020/09/11/what-to-do-about-annual-incentive-plans-in-the-pandemic/

HR Dive, “Coronavirus Derailed 2021 Salary Plans for Many Employers, Survey Says”

https://www.hrdive.com/news/coronavirus-derailed-2021-salary-plans-for-many-employers-survey-says/589358/

KornFerry, “Developing Agile Reward Strategies for a Volatile World”

https://www.kornferry.com/content/dam/kornferry/special-project-images/coronavirus/docs/KF_Playbook_RewardsAndBenefits.pdf

PR Newswire, “Only Half of U.S. Workers Will Receive a Salary Increase in 2021”

https://www.prnewswire.com/news-releases/only-half-of-us-workers-will-receive-a-salary-increase-in-2021-301169642.html

SHRM, “Developing a Post-Pandemic Pay Strategy”

https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/developing-a-post-pandemic-pay-strategy.aspx

SHRM, “Fewer Workers Will Get Pay Raises in 2021; Bonuses Gain Ground”

https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/fewer-workers-will-get-pay-raises-in-2021-as-bonuses-gain-ground.aspx

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