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Compensation Practices During the Pandemic: Lessening the Impact

During the COVID-19 Pandemic, employers must rethink their compensation practices and strategies, and remain flexible with their pay programs where possible. As companies evaluate their current financial situation and prepare for the months to come, compensation is a significant part of that assessment. Employers can take some actions now to mitigate the negative impacts on employees and better position themselves for financial recovery.

While businesses in the travel, hospitality, and restaurant industries have been hard hit, the pains have been felt mostly by workers. If schedule cuts, layoffs, and furloughs haven’t already occurred, thoughts of impending layoffs have been on many workers’ minds and fueling the fears of uncertainty and financial hardship. Hourly employees are bearing the brunt of layoffs, reduced hours, and limited shifts compared to their salaried peers.

Be Flexible with Programs

Despite these challenges, there have been many examples of employers doing their best to be flexible with their pay and benefits programs to keep their employees and their families as financially stable as possible during this economic crisis. Some organizations have committed to helping their employees by offering additional financial support or making exceptions to their current compensation programs to ensure employees can endure the difficult times ahead.

Large players that can afford to do so have opted to continue to pay their workforce despite not being able to have them come into work. Retail giants like Walmart and Kroger have committed to offering $300 appreciation bonuses. Netflix created a $100 million relief fund to support those who have lost jobs as a result of canceled production schedules. Starbucks offered catastrophe pay for up to 14 days for those employees diagnosed with or directly exposed to the coronavirus. Facebook announced last month that they would send $1,000 checks as well as alter performance ratings to enable maximum performance-based pay increases for every one of their employees.

These are just a handful of examples where organizations are taking a supportive lead to help workers cope with the current climate and the challenges to come. Yet, not every organization is as large or as financially capable of pivoting to these types of methods. For those organizations that don’t have deep pockets, there are other ways an employer can be flexible and supportive:

  • Repurpose annual bonus program budget for employee emergency funds;
  • Subsidize office equipment for employees that can work remotely;
  • Implement a PTO donation program for those who can help others that need the extra time off;
  • Increase hourly rates for frontline workers who are putting themselves and their families more at risk by leaving their homes and interacting with other people;
  • And/or institute hazard pay for those employees who are in roles that are considered essential jobs.

Support Your Sales Team

With business-to-business and business-to-consumer sales significantly slower, another area of consideration is the impact on compensation of your sales team. Salespeople generally have a significant percentage of their total pay coming from incentive bonuses earned as a result of a sale or contract closing. In many cases, these sales incentives represent between 20% to 50% of their total annual take-home pay.

With the reduction in sales opportunities comes a sharp drop in take-home pay for affected sales reps. As a result, as many as two out of three salespeople are more concerned about their paychecks than getting sick with COVID-19, according to a recent Korn Ferry webinar.

For those organizations still in operations, one of the significant risks of not addressing sales compensation involves sales reps jumping ship and seeking opportunities in other industries less impacted. After all, their skills are easily transferable. During these uncertain times, it’s essential to support your sales team as they will be crucial to helping your organization recover financially. Some immediate options for an organization to consider are:

  • Providing a guarantee based on 100% target attainment for the next two quarters;
  • Increasing accelerators for sales beyond a certain level of attainment;
  • Lowering target thresholds to recognize the significant restrictions on opportunities posed by the pandemic;
  • Changing the incentive plans into a bonus plan for the remainder of the year;
  • And/or implementing award or recognition programs that foster motivation for working harder and seeking new or more opportunities despite the setbacks.

Revisit Performance Goals

Re-evaluate any established performance goals, especially if the achievement of these goals tie to compensation outcomes. Goals set at the beginning of the year might make sense under normal circumstances. However, the new normal during these difficult times may warrant an alteration to expected levels of performance. Productivity and performance standards might need to be measured differently due to social distancing restrictions and office closures. Under the circumstances, resetting performance expectations is well worth considering for organizations continuing to tie pay to performance.

Additionally, it’s essential to keep tabs on your employees who are top or exceptional performers. These team members will help your organization push forward and thrive during recovery mode. Like sales and business development workers, high performing employees are critical assets to an organization. They may be at risk of leaving to seek employment in industries less impacted by the pandemic. It is essential to continue recognizing their performance and contributions. Organizations could consider the implementation of a recognition program (if one doesn’t currently exist) to not only support and motivate high performing workers but also potentially help them financially.

Communicate Any Changes or Updates to the Workforce

Communicate promptly any changes made to employee compensation or benefits programs. Keeping affected workers apprised of the evolving situation(s) within the organization as it relates to their livelihoods helps build and sustain trust.

What Actions to Take Now

There is no doubt that budgetary challenges will be a reality in many organizations for the remainder of the year. Most planned changes to existing compensation programs are on hold and should be on hold for the foreseeable future. This does not suggest that organizations should not continue to keep a pulse on the market for compensation trends and market data for their jobs. On the contrary, human resources professionals and business leaders should establish or re-evaluate their compensation programs to ensure wise spending, building in flexibility, and identifying alternative options for best-case and worst-case scenarios.

Indeed, there are many options to consider and actions an organization can take to help mitigate the negative financial impacts on employees, as we’ve already discussed. There are also measures and actions an organization can take to position themselves better in the market, such as:

  • Conducting a compensation market study
  • Developing flexible compensation programs
  • Implementing short-term compensation programs that reward and motivate high productivity and performance

Plan for Long-Term Growth

Generally, employee compensation and benefits make up the majority of organizations’ costs. With the economic recession as a result of the pandemic, the short-term financial impacts are apparent. However, the future remains unclear for many. The unfortunate truth is that many organizations are not prepared to handle long-term financial hardships and, therefore, may not survive the current and post-pandemic climate.

With this harsh reality, surviving organizations would do well to evaluate and plan for workforce expenses for the years to come. Additionally, thought and consideration could go into developing long-term incentive strategies that aim to support the retention of critical talent while rewarding key employees/key positions for results that are crucial for the organization’s long-term survival. Examples of this could include multi-year bonuses tied to key financial objectives or stock ownership programs.

It is essential to consider that this pandemic is, as are all major disasters and world events, only temporary. Therefore, these changes should be temporary, as well. And while it is natural to consider making drastic decisions such as cutting back on employee pay, this permanent solution to a temporary problem may yield more undesirable and unfavorable results long term.
For all businesses and organizations, the road to economic and financial recovery will be gradual. Taking actions now to help mitigate short-term damage while developing plans and compensation programs that support and promote long-term growth and recovery are critical.

In these uncertain times, it’s worth repeating that flexibility and organizational agility is crucial for survival when economic, social, legal, and societal changes are developing and evolving by the day.

Each employer’s burden is unique. We can help you explore your options for lessening the impact. Eligible members can contact the HR Hotline. All outbreak-related Toolkit resources are available to all members during this time. Simply log-in and find the COVID-19 Resources page under the Member Home section of the website. For information about our compensation consulting services, please reach out to info@archbright.com or directly to your account executive.

An excerpt of this article first appeared in April Insights.

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Joe Padilla

Joe brings extensive experience as a compensation professional in the Pacific Northwest, both as a consultant to multiple clients and as a part of internal HR organizations. Throughout his career, Joe has supported all types of compensation work, from compensation program development and integration of practices in M&A’s, to the creation of compensation philosophies, strategies, and everything in between. His expertise includes broad-based compensation, pay structure development, and total rewards best practices. Joe is a graduate from the University of Washington’s Michael J. Foster School of Business and is a Certified Compensation Professional (CCP).