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COVID-19 pandemic’s impact on workforce and pay programs

Emerging trends on cost control actions and pay program changes

Compensation Strategy & Design|Executive Compensation|Health and Benefits|Talent
COVID 19 Coronavirus

By Alison Humphrey and Megan Boyce | April 23, 2020

As COVID-19 persists we explore how companies’ actions and practices have evolved in response to the ongoing pandemic.

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About our COVID-19 coverage

In our ongoing coverage of the COVID-19 outbreak, experts from across Willis Towers Watson share insight into what you need to know to manage your business and employees and reduce your risk.

Willis Towers Watson is regularly fielding surveys related to COVID-19 (coronavirus). Our latest survey, conducted on April 6, re-explored many of the same topics that we queried during the onset of the crisis in our March 23 survey to reveal how employer’s actions and practices have developed as the pandemic continues.

Based on input from over 600 respondents from companies in North America, the findings reveal a rising number of companies have taken cost control actions over the last few weeks along with an increase in the number that are providing pay premiums and additional compensation to critical or essential employees.

Containing costs through pay actions

As we look at the evolution of company reactions over the last two weeks, we see an uptick in companies that have reduced or delayed merit increases (from 12% to 21%). However, nearly 50% of companies are not planning or considering taking this action, which is consistent with the previous study. This may be because many companies, particularly those that operate on a calendar year, may have already distributed their merit increases earlier in the year. If we look at the data more closely from an industry lens, nearly half (49%) of the companies categorized in the wholesale and retail industry have taken this action (up from 27% in the previous survey).

Approximately 20% of organizations have already or are planning to freeze or reduce pay as a method of cost containment, compared to less than 10% in the previous results. Companies are more likely to target their broad-based salaried and executive workforce on pay-related actions, particularly when it comes to salary reductions. For companies that are reducing salaries, the salary reductions reported remained consistent, ranging from 10% to 20% of salary depending on level.

Since last survey, companies that have or are planning to freeze or reduce pay has doubled.
Actions taken regarding pay

Source: 2020 COVID-19 Cost Management and Pay Considerations Survey

Aligning to the merit results, the data indicates that the industry with the most companies utilizing these tactics are in the wholesale and retail industry, where 41% of companies have frozen salaries, and 33% have reduced salaries.

Workforce reductions increasing but still not prevalent

While layoffs and workforce reductions are still not a common practice, the prevalence of companies that have acted has increased from 7% to 13% overall over the course of the last few weeks. And 35% of companies are planning or considering such action. Targeted workforce reductions are typically around 15% of the workforce, although in many cases it can be much higher.

Currently, 13% of companies surveyed have reduced their workforce.
Actions taken regarding layoffs

Source: 2020 COVID-19 Cost Management and Pay Considerations Survey

The industries with the largest increase in companies acting on workforce reductions since the previous cost containment survey are wholesale and retail (up from 9% to 23%), general services (up from 10% to 18%) and IT and telecom (up from 6% to 19%). The financial services industry has been able to avoid layoffs with no companies reporting workforce reductions across the two surveys.

Involuntary furloughs have been imposed by a relatively small percentage of companies (16%, up from 6%), though 28% of companies are planning or considering action for specific groups of employees. Targeted involuntary furloughs typically affect about 20% of the workforce.

Around 45% of companies have no current plans to impose leave of absences.
Actions taken regarding involuntary furloughs

Source: 2020 COVID-19 Cost Management and Pay Considerations Survey

The industries with the largest increase in companies imposing involuntary furloughs since the last survey are wholesale and retail (up from 9% to 41%), general services (up from 11% to 32%) and manufacturing (up from 8% to 22%). Only 1% of energy and utilities, and financial services participants report having furloughed employees to date.

We expect to hear about more actions in this space over the coming weeks. Most participating companies that reported they will provide pay to employees for time not worked due to COVID-19 if the employee is incapable of working from home, indicated they would do so for either two weeks or for a duration not yet determined. As the two-week period expires and companies re-evaluate their positions on paying for time not worked, we presume companies will have to consider workforce reductions or at least be prepared to do so if costs become necessary.

Companies considering layoffs or furloughs are beginning to think about some of the key elements of design, which include determining the impacted population, duration, and impact on pay and benefits. Cost modeling is often run under different scenarios and takes into consideration federal and state information.

Rules and regulations are evolving during the pandemic. Companies need to ensure their experts are checking the most up-to-date federal and local government information and market insights and emerging best practices. (The Willis Towers Watson COVID-19 website is updated daily and contains links to other useful websites such as the CDC, NIH and WHO.)

Pay premiums for those who must be physically present at work

One in five organizations is providing additional pay premiums for employees who must be physically present. There was an increase in the number of companies providing, considering or planning pay premiums for employees who must be physically present, up from 39% of respondents to 50%. Pay premiums for mandated physically present employees are typically 10% above baseline compensation for both hourly and broad-based salaried employees.

Premium pay is often implemented for workers who must be physically present.
Actions taken regarding premium pay

Source: 2020 COVID-19 Cost Management and Pay Considerations Survey

The industries with the largest percentage of companies providing additional pay are financial services (33% up from 6%), wholesale and retail (24% up from 18%), and manufacturing (24% up from 6%).

We expect that companies will continue to monitor pay practices related to implementing specific pay premiums to recognize employees who must be physically present and make decisions based on business necessity. Alternatively, companies should consider if offering allowances, spot bonuses or other recognition for special circumstances is a more appropriate way to reward essential or critical talent.

Rapid changes require continuous study of practices

We expect many companies will continually re-evaluate policies over the coming weeks and anticipate organizations will continue to adapt their compensation programs to the current conditions of COVID-19 to manage through the crisis. We recommend that companies evaluate compensation strategies using market norms to help formulate solutions, though the business context and financial condition of the organization is paramount to decision making.

We plan to continue to survey companies and monitor any compensation trends as the situation continues to progress. We will also have an eye to the future as we begin to think about restoring stability and the actions necessary to start rebuilding and returning to work.

Authors

Director, Rewards

Analyst, Executive Compensation

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