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Article | Beyond Data

Seven lessons about compensation strategies during a crisis

Compensation Strategy & Design
Beyond Data

By Hatti Johansson | November 20, 2020

The pandemic has highlighted the need for agility in compensation strategy.

The COVID-19 pandemic has provided stark examples of how a crisis can force organizations to take difficult actions around compensation and workforce strategies, often unheard of during business-as-usual circumstances. Here are seven lessons we learned during the pandemic.

This graphic shows the seven lessons to be discussed in the article: contain costs quickly and protect your employees; recognize and reward essential/critical talent; rethink executive total compensation; accelerate your digital transformation; ensure fair and equitable compensation for all; make ESG metrics a priority; base decisions on sound market data.
Seven lessons for restoring stability
  1. 01

    Contain costs quickly; protect employees

    In the early days of the pandemic, organizations took swift and decisive cost-saving actions to prioritize job security for employees.

    Figure one shows actions organization across APAC, EMEAN, LATAM and NA took to contain costs quickly: reducing or delaying merit increases; rescinding offers/delaying start dates; eliminating or reducing the hiring of season workers; implementing a salary freeze. Hiring freezes were most common with a global total of 63 percent.
    Figure 1 – Actions taken to contain costs quickly1

    When/in cases where businesses have reopened , organizations are exploring a variety of new initiatives, from technologies that support remote work to programs that improve engagement and wellbeing. Many are also reviewing their rewards and reskilling programs for the “new normal.”

    Figure two shows new priorities for the FY2020, including 33% new initiatives and 28% reskilling.
    Figure 2 – New priorities for the rest of FY20201
  2. 02

    Recognize and reward essential/critical talent

    Organizations provided cash allowances as a primary reward for essential workers. They also explored other rewards such as non-cash meal benefits, shorter or flexible working hours and enhanced benefits for illness or disability.

    Figure three depicts rewards trends concerning essential/critical talent. Around a quarter of organizations globally have provided rewards, with enhanced cash allowances as the most prevalent.
    Figure 3 – Rewards trends concerning essential/critical talent2
  3. 03

    Rethink executive total compensation

    Approximately 20% of organizations globally cut executive pay by June 2020, but these changes were temporary and expected to last only between three to six months for most organizations.1,2

    Figure 4 depicts percentages of organizations that reduced pay for executives versus for entire employee population. North America was most drastic and most evenly split with 51% executive compensation reductions vs 60% employee population reductions. LATAM was 12% versus 57%; EMEA was 12% versus 48%; and APAC was 14% versus 7%.
    Figure 4 – Organizations that reduced pay for executives versus for entire employee population

    A small percentage of organizations also restructured their executive total compensation program, for example, delaying goal setting for annual incentive plans and adjusting long-term incentive plans. The majority of organizations, however, adopted more of a “wait and see” approach and did not make any changes, opting instead to observe how the situation continues to evolve over time.

    Figure 5 illustrates changes implemented on annual incentive plans across regions with the most prevalent action being delayed goal setting: 20% in APAC, 15% in EMEA, 13% in LATAM and 6% in NA.
    Figure 5 – Changes implemented on annual incentive plans1
    Figure 6 shows changes implemented on long-term incentive plans. The most prevalent by region is as follows: APAC – change in vehicles or vehicle mix; EMEA – delay date of grant; LATAM – reduced target award value or size; NA – delay date of grant.
    Figure 6 – Changes implemented on long-term incentive plans1
  4. 04

    Accelerate digital transformation

    When organizations moved most of their workforce to remote, non-office-based locations during the crisis, and are now potentially extending and/or expanding remote working well beyond it, a heightened need to strengthen the security and reliability of digital infrastructures emerged. This, in turn, led to a more focused hunt globally for digital talent skilled in high demand areas such as cryptography, AI and machine learning and cloud engineering.4

    Figure seven illustrates that cryptography, AI and cloud engineering were the most in-demand skills globally.
    Figure 7 – Most in-demand digital skills globally3

    While many organizations expect to bring a large percentage of their workforce back onsite post-crisis, certain roles will remain remote. To enable longer-term remote working, organizations are looking at tools and resources needed to support their remote workforce.

    With more than 20% of global workforces to remain on remote work, Figure 8 shows organization responses by regional. APAC reports 25% are taking action and 50% considering action; EMEA reports 25% taking action and 60% considering action; LATAM reports 25% taking action and 67% considering action; and NA reports 20% taking action and 67% considering action.
    Figure 8 – Organizational responses concerning remote work1
  5. 05

    Ensure fair and equitable compensation for all

    Organizations prioritized transparent and timely communication on compensation, including changes to pay such as reductions and freezes. This ensured employees viewed any compensation decisions as fair and equitable, and enabled them to manage their finances and salary expectations through uncertain times.

    Figure nine shows that organizations prioritized transparent and timely communication on compensation and all regions were similarly split in regards to taking action, considering action, and either not taking action or not yet being certain about taking action.
    Figure 9 – Organizations that took actions on communication about pay1
  6. 06

    Make environmental, social and governance (ESG) metrics a priority

    Even before the pandemic hit, organizations around the world had already begun incorporating ESG metrics into executive incentive plans, as part of a push towards developing a greater sense of corporate purpose and responsibility. COVID-19 helped accelerate those actions.

    Figure 10 is a map illustrating that organizations indicated human capital-related goals were among the top areas of emphasis in the total compensation framework for executives. NA cited an increased importance around human capital metrics in executive incentive plans; LATAM linked executive compensation plans to next-generation human capital measures; EMEA increased engagement with broader stakeholders; and APAC linked executive compensation plans to next-generation human capital measures.
    Figure 10 – ESG-related emphasis in total compensation framework post-COVID1

    In fact, in our recent survey1 on post-COVID actions, organizations indicated human capital-related goals were among the top areas of emphasis in the total compensation framework for executives. These include a greater focus on employee wellbeing, corporate culture, job redesign and employee reskilling.

  7. 07

    Base decisions on sound market data

    Organizations should continually reference market intelligence to determine measured responses to crucial work and rewards questions. Here are five examples of where market intelligence could support compensation decisions in uncertain times.

    Market intelligence can support critical compensation decisions across the board, including the following: evaluate temporary actions versus permanent actions; review competitive rewards for essential/critical talent; design rewards and retention programs for critical digital talent; ensure compensation plans are aligned with business strategy; and optimize compensation and benefits spend.
    Figure 11 - Key considerations to support compensation decisions in uncertain times.

References

1 2020 COVID-19 Actions to Restore Stability Survey – North America

2 2020 Salary Budget Planning Survey – Global

3 2020 Artificial Intelligence and Digital Talent Survey Report

Author

Global Innovation and Product Development Leader

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