The compensation structures will be redesigned with a higher focus on variable components in the salaries, particularly of those in middle and senior management in new normal.
Big Reset: Reviewing Compensation & Benefits Strategy in New Normal
This unprecedented global pandemic is disrupting supply chains, consumer spending, business productivity, employee well-being, and the foundations of the way we work. As the “RESPOND” phase approaches, one of the key priorities for many companies is to conserve cash and ensure continuity.
The COVD-19 crisis will lead many organizations to modify their cash compensation programmes and evaluate alternatives that help to protect cash in the short term as well as retain their critical Talent. The compensation structures will be redesigned with a higher focus on variable components in the salaries, particularly of those in middle and senior management in new normal.
This will not only make compensation more performance-linked but at the same time will give some breathing space to organizations to remain afloat in these crisis times and ensure performing employees do not lose their jobs. These measures would largely be applicable for roles that are key in the organization and are making decisions around strategy/way forward thereby making such roles more accountable towards an overall Institutional performance and not just individual contributions.
“Also, there is a likely shift to focus on “output” than “hours” spent on the job. More and more jobs would get paid basis the “real output/deliverables” as we adapt to this new normal.”
Organizations may have to shift their focus from cash compensation to equity by converting either a part of the fixed compensation or the bonus payouts to equity-linked instruments like stock options, restricted stock units, performance shares, etc. This measure will be quantified as a non-cash expense in the P&L and potentially lower immediate P&L expenses. These instruments will also promote alignment of the leadership team’s performance to that of the organization and act as a critical retention lever.
There is an increased focus on re-working the insurance plan benefits for Employees, especially around coverages & exclusions. There will be a renewed focus on providing a seamless support system to provide easy access to various services like TPA, hospital network, Covid19 specific products, and the overall query management.
There are a variety of working scenarios and innovations that organizations are coming up with to evaluate the reduction in the fixed cost and provide larger indirect benefits-focused towards health, safety & wellbeing. The shift from traditional mind-set of having a job with fixed salary is moving towards flexible scenarios of working like Remote Work (Work from Home), Part-Time Model (Number of working hours in a day), Compressed Week (4 days a week for 8 hours working), Contractual/ Consulting/ Retainer ship model, Results in Only Work Environment (ROWE)/ Project base model. This allows both the employee and the employer to operate with greater flexibility, lesser fixed cost and higher productivity.
There are likely to be changed around Sales Compensation too. Organizations will have to tweak the sales compensation designs to cater to market sentiments/social distancing norms/increased lag time to close the deals etc. Many companies would redesign their sales targets/compensation towards a renewed focus on usage/consumption of the already sold products, repeat sales, retention of customers & customer service. To avoid attrition of sales staff, Companies will also explore the possibility of deferred Incentive payouts.
A host of interventions will be tried and tested by organizations to understand what is most suitable for their economic and business scenario both in the short-term and long-term. Some of the most prevalent measures may include reduction or freeze of headcounts, temporary or indefinite delay/suspension of any salary reviews and performance bonus payouts, delay in any form of long-term incentive payouts for the year 2020. Companies are also reviewing the annual leave policy/accrual methods to reduce the cost base as new normal. The reduction of annual fixed salary is the most prevalent measure being seen in the C&B space.
No one planned or anticipated this pandemic, the last 5 months which are ‘THE’ most crucial months (financial year closing) have got significantly impacted, in turn impacting the businesses, revenue generation, profitability, and sustenance of the mid-small organization. Needless to say, all organizations have been impacted however the mid to small scale organizations are the most impacted. This had led to the re-evaluation of all bonuses, pay-outs, and increments along with the identification of key/critical talent and moving others to new ways of working.
When mitigating the effects of COVID-19 in new normal, there is no single approach that is suitable for all organizations; instead, the measures taken or considered, are influenced by how quickly organizations can or have to make decisions, how mature the business is, and their corporate social responsibility towards their employees.
Many Corporates will eventually consider exercising a combination of various compensation-related measures depending on their business priorities. However, it is advisable that before any of such measures are implemented, HR & Legal should proactively check the statutes or any new regulation under COVID-19 guidelines which prohibit employers to take any such compensation-related newer ideas.
Last but not least, it is prudent that there is transparent and continuous communication with employees on their Compensation related changes. Compensation affects the lives of employees and sometimes grow into a touchy topic, if not handled well. Good or bad, whatever the decisions are, employees would like to know the logic of compensation decisions. There may still be dissonance around the decisions, but Employees would always welcome proactive candidness.