Employee Compensation Pre-and-Post COVID-19

The Compensation and Benefits Package an employee receives is considered the main motivator for them (outside of a personal sense of purpose). As such, it plays a crucial role in determining successful recruiting, engagement, and retention strategies. Failing to offer the right mix of benefits and compensation will translate into additional costs for the organization. According to a survey by Pew Research Center, low pay, lack of opportunities and feeling disrespected at work are the top reasons why Americans changed their jobs. Findings related to the COVID-19 impact showed that employees’ lifestyle has changed, and flexible working hours are the top benefit, followed by more paid time-off options. 

The COVID-19 pandemic has had a significant impact on the compensation of employees across various sectors and industries. According to a survey by WorldatWork, in the USA an average salary structure has seen upward adjustments of 1.9% in 2020, representing a significant slowdown from 2.2% in 2019, affected by a much larger number of organizations reporting no salary structure increase. According to a report by Willis Towers Watson average actual salary increases hit 5.4% in 2023 as compared to 5.0% in 2022 among organizations in the top 15 economies around the world. It is estimated that the increase would be around 5.0% in 2024. 

 

 

Compensation trends that have emerged or intensified during the COVID-19 pandemic: 

 

  • Variable pay:

    Many employers have shifted from fixed pay to variable pay to align their compensation costs with their business performance and to incentivize their employees based on their results. Variable pay can include bonuses, commissions, profit sharing, stock options, or other forms of contingent rewards. According to a survey by Aon, 42% of companies in India plan to increase their variable pay budgets in 2021, up from 33% in 2020. This is to reduce the fixed costs and can modify costs based on company performance and market outlook. 

  • Total rewards:

    The pandemic has also prompted many employers to adopt an integrated approach to compensation, which considers not only monetary rewards but also non-monetary benefits that employees receive. According to a study by timesjobs.com bureau, 70% of companies in India plan to enhance their total rewards strategy in 2021, up from 56% in 2020. This results in a change in employee perspective, giving them the impression that the organization is looking at the overall well-being of the employee. 

  • Proximity Bias:

    The recent shift to remote or hybrid work has created a “visibility” concern for many employees. Proximity bias describes how people in positions of power tend to treat workers who are physically closer to them more favorably. This stems from the antiquated assumption that those who work remotely are less productive than those who work from office. Additionally, this is an example of the out of sight out of mind” effect. 

A survey by the SHRM (2018) showed important correlations between compensation and benefits and job satisfaction, where 92% implied compensation and benefits were critical to their job satisfaction; while 32% stated that the reason why they loved working in the company was exactly the benefits and compensation they received. 

 

Factors that have affected the compensation pre and post COVID-19: 

 

  • The type of industry and occupation:

    Some sectors, such as health care, technology, e-commerce, and logistics, have experienced increased demand and growth during the pandemic, while others, such as hospitality, tourism, entertainment, and retail, have suffered severe losses and closures. This has resulted in different compensation trends and strategies for different industries and occupations. For example, some employers in high-demand sectors have offered bonuses, incentives, or retention payments to attract and retain talent, while others in low-demand sectors have implemented pay cuts, furloughs, or layoffs to reduce costs and survive. 

  • The mode of work:

    The pandemic has also accelerated the shift to remote work for many employees who can perform their tasks online. This has created new opportunities and challenges for compensation management. On one hand, remote work can offer flexibility, cost savings, and productivity benefits for both employers and employees. On the other hand, remote work can also pose issues such as communication difficulties, isolation, security risks, and performance evaluation. Therefore, some employers have adjusted their compensation policies to reflect the changing nature of work and to reward employees based on their outcomes rather than their inputs. 

  • The employee expectations and preferences:

    The pandemic has also changed the expectations and preferences of employees regarding their compensation and benefits. Many employees have prioritized their health, safety, and well-being over their financial rewards during this crisis. Therefore, some employers have enhanced their non-monetary benefits such as health insurance, wellness programs, paid leave, flexible work arrangements, and employee assistance programs to support their employees’ physical and mental health. 

 

Insights: 

Some of the changes that companies need to do to their compensation policies post covid are: 

  • Change performance evaluation:

    Review the performance evaluation and incentive systems to align them with the new goals and challenges of the post-covid era. Instead of leaving it up to chance, create clear guidelines for each role. Define responsibilities, expectations, and next steps for career growth. Having a defined path for growth makes it easier to evaluate both in-office and remote employees. And your team will appreciate knowing what they need to do to be rewarded for their hard work. Our recommendation is to schedule regular check-ins with the employees to develop a more inclusive workplace for remote workers. 

  • Change pay structure:

    Employers may also need to redesign their bonus, commission, stock option, and other incentive plans to motivate and reward employees for achieving the desired outcomes. This will help in reducing the fixed costs and keep the employee motivated at the same time.  

  • Enhance benefits:

    Evolve the benefits and rewards that support employee well-being and work-life balance. Companies need to offer benefits and rewards that address these needs, such as health insurance, wellness programs, mental health support, paid leave, childcare assistance, learning and development opportunities, etc. 

  • Communicate:

    Employees are happy if they feel they are being paid fairly for their work, but they are more engaged if companies have a transparent compensation policy. Employees trust companies more if they understand the company’s decision-making process for employment packages, and employers need to be able to explain this clearly to the rest of the organization. Even if an employee disagrees with the company’s process, it opens a path for them to communicate their opinions and concerns, leading to a healthy discussion for companies to improve their compensation and benefits packages. 

  • Conduct Employee surveys:

    Surveying employees from all rankings on their needs and what they look for in a company gives perspective on what the company can do to improve how they take care of the workforce. Employees from one company can have diverse needs and wants compared to other employees from another company, so it is important for employers to understand their workforce and not solely rely on and copy other companies’ compensation and benefits packages. Employee surveys and feedback also reveal what employees think of the company and can help clarify any misunderstandings or catch any grievances employees could develop towards the company in the future. 

 


Pushkar, a Senior Consultant working with our Human Capital Management Practice, loves to talk about Compensation, Talent, Learning and Harry Potter along with all other things HCM. He shares his insights on how organizations can rethink their compensation strategy now that COVID-19 has indelibly changed business.

 

Posted in HCM