Taking A Fresh Look At Compensation Trends In A Recessionary Environment

Today’s invaluable resource is human capital, as measured by the time, talent, and energy of the company’s workforce. A compensation philosophy is a company’s formal statement that attracts talent, motivates employees, increases loyalty, improves performance, creates job satisfaction among employees, and is based on the company’s financial position, size of the industry, business strategy, market salary information, and is reviewed periodically. As the adage goes, “you can’t manage what you can’t measure”. While an average company considers approximately 15% of its employees as difference-makers, HR pursues a compensation philosophy in collaboration with the leadership team to obtain valuable input, direction, and buy-in of its star performers.

The acronym FARM model propounds to serve human capital needs -

• Focus on the organization’s pay programs and total reward strategies such as base pay, variable compensation and ensuring equal pay for equal work
• Attract people to join the organization.
• Retain key talent and award high-performing employees.
• Motivate employees to perform at the best of their competencies and skillsets.

To measure human capital, big data tools such as Microsoft Workplace Analytics, Bain’s productive power index, and various compensation management software like CompTrak, FairPay Pro manage from salary to customized bonus and long-term incentives along with budgeting and forecasting man-hours and eliminates the need for spreadsheets.

Compensation would have driven Recruitment and Retention in 2020 before the recession hit according to Monster.com’s 2020 State of the Candidate Survey report, 40% of candidates sought “higher salary” during the job search process, followed by benefits (21%), and flexibility/lifestyle (20%). While accepting a job offer, salary (73%) is the leading consideration, followed by time off/vacation days (39%), flexible work hours (34%), retirement benefits (33%), and company perks/benefits (33%). The gender Pay Gap stats reveal that 58% of female candidates were being paid fairly compared to males (70%). According to 80% of candidates, there should be greater transparency around salaries in the workplace. Monster reports that 43% of candidates would partake a gig Economy to fill the gap in salary. Certainly, if an employer cannot match the salary amount the candidate is expecting, the employer could consider incorporating other benefits within overall compensation.

Compensation Trends During Economic Turmoil

Korn Ferry, a Management consulting company recently released a report on the “Impact of Covid-19 on Rewards & Benefits” March 2020 pulse survey. Few takeaways that some organizations have planned or are planning to mitigate the financial crisis:

• 34% of participants have already frozen or are considering freezing salaries.
• 15% of respondents are reducing, deferring, or delaying annual bonuses, long-term incentives
• 20% of participants have either already made salary cuts or are considering making salary cuts.

What business leaders are doing to save costs amid slowdown?

HR can revamp their hiring practices- talent interviews, selection, and onboarding to maximize cost efficiencies when times are uncertain. Compensation planning is essential as it indicates where the company is overpaying certain positions and determining options to maximize payroll. Currently, few organizations are identifying market salary ranges and identifying over-payment and underpaid positions to balance wage costs across the board and also prefer paying a hiring bonus rather than a higher salary. Several organizations have created an admin pool for operating with reduced resources, and leaner staff. Those administrative staffs are cross-trained and wouldn’t require temporary workers. While others prefer hiring interns working part-time at a set salary, no benefits package, but receives on-job training to fill positions at a lower pay rate. Moreover, some have allowed employees to schedule a rotating ‘layoff’ week to avoid job elimination. During hard-hitting times, communication is the key and companies are completely transparent with the financial condition of the organization, with the CEO giving an update biweekly.

• Are all types of pay for top talent adequate? employers can “look for alternate ways to use the same money” such as new incentive opportunities and more-frequent pay-outs, changes to performance metrics, and productive performance management discussions.
• Is the organization managing existing talent well? effective performance and talent management programs to spot individuals and roles that create the greatest impact on the organization’s performance.
• Is pay equity an issue? Equal pay concerns require employers to ensure consistent pay-related decision-making by having well-documented performance metrics and still being responsive to the market.
• Is the organization ready to play offense, not just defense, when it comes to compensation? Recruiting workers from struggling competitors, Suspending Benefits excluding Healthcare, avoiding Inexpensive perks Cut That Boost Morale may require strategic opportunities of nimble approach to pay.
• Who was their talent market? How competitive could they be? What did they choose to reward? Solutions to these would aid organizations to develop a competitive compensation strategy regardless of market conditions.

In this VUCA world, we may not ascertain what the world beyond the horizon holds, but we can acknowledge that it will not exactly replicate the past. Our compensation planning must start today to prepare for whatever is ahead and it varies across industries. While compensation is important in engaging employees, pay transparency, compensation strategy communication leads to increased trust in HR and overall engagement to fulfill its maximum potential. As Haruki Murakami (Japanese writer)quotes,

“What we seek is some kind of compensation for what we put up with”.

References- HBR, SHRM.org

Originally published at https://www.linkedin.com.