The social and economic impacts of COVID-19 have forced a significant number of organizations to reevaluate their approach to compensation & benefits.
Prior to the pandemic, the outlook was strong with low unemployment, positive economic indicators, and a tight labor market. Then, almost overnight, we experienced an economic shutdown, skyrocketing unemployment, and a massive & expensive stimulus response.
While organizations have come up with different strategies to tackle or take control of the situation, a full economic recovery for everyone may still take a good amount of time.
In the meantime, organizations are learning how to do more with less. Companies are taking this as an opportunity to examine their existing programs to increase their agility, transparency, and innovativeness to develop a more meaningful and strategic approach to employee pay.
Let us look at some of the trends in compensation & benefits in 2021 and beyond.
The stigma previously associated with working from home has disappeared. Instead, remote work is expected to continue and increase for some industries, as the economy eventually recovers from the pandemic. This may also give a significant financial edge to many companies.
While saving money, without reducing productivity, has always been a goal of most organizations, the remote-work option has opened the idea for many organizations that employees do not have to be in the same location to perform well, or collaborate with other team members.
This thinking has provoked some employers to explore other markets to find top talent. As a result, employers in larger metros may consider hiring talent from locations with a more affordable cost of living, which can result in salary cost-savings as well as improve diversity.
They can then invest this money in other benefits that will help attract top talent, such as professional development, tuition fee reimbursement, wellness incentive programs, and childcare assistance.
The other side of remote working that is being explored by most of the organizations is the adjustment of employee pay, if they move from a high cost to a low-cost location.
However, the adjustment of compensation cannot be 100% aligned to that of the location benchmark. It would depend on how competitive the talent market is for some of these jobs. For example, it might be more economical to keep a top performer’s salary the same, especially if it’s a hard-to-fill role.
While the distributed workforce model could have a significant impact on compensation, it goes well beyond that. There are various tax and legal compliance requirements both for the employer and the employee that needs to be considered before initiating international home working policies.
Each case needs to be analyzed from the perspective of permanent establishment, personal income tax, social security, and labor law arrangements.
Many organizations are putting conscious efforts to review their existing compensation policies to bring equity in compensation when employees perform the same job or role while accounting for other factors such as their experience level, performance, and tenure with the organization.
We will see organizations having gender balance and pay equity with a conscious budget strategy as one of the important topics to address in their boardroom agenda.
Also, this will not be just confined to base compensation. We will see more and more organizations redesigning their long-term incentive schemes as well by giving senior leadership teams specific targets to develop women employees to grow and have them succeed into senior/leadership positions and be eligible for such incentives.
Another important factor to consider is that the millennials, the Generation Z or the Woke generation, actively look for inclusive employers and ask about Diversity & Inclusion commitments during their interviews.
By ensuring employees are paid equitably, employers can increase efficiency, creativity, and productivity by helping to attract the best talent, reduce turnover and increase commitment to the organization.
Pay for Skills
Digital transformation and automation have brought in a disruption to such an extent that organizations’ are constantly challenged to adopt new technologies that can help them accelerate their business processes and bring in higher returns on investment.
Hence it is not just important to have great people but also updated skill sets if a company must sustain and achieve its goals in today’s fast-evolving digital space.
However, it is equally important to consider human capital and technology together, not separately. According to the Future of Jobs Report 2018 from the World Economic Forum, by 2022, more than 54% of the workforce will likely require significant reskilling and upskilling.