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Reward after Covid-19 will look very different

8 Jul 2020 By Ruth Thomas

Many firms will have to maintain pay cuts for some time, says Ruth Thomas, but they must strike a careful balance to retain and attract talent

Tactical decisions on employee compensation and benefits were a critical part of the initial Covid-19 crisis response phase as employers walked the tightrope between balancing costs while maintaining pay continuity and physical security for employees.

The decisions made by HR today could make or break a business as we move from response phase to recovery and beyond. There is still a lot of uncertainty as governments play a ‘cat and mouse’ game of unlocking our societies and economies while monitoring contagion rates. Against this backdrop, what changes can we anticipate for reward? 

Managing reward in a recessionary environment

McKinsey’s recent report indicated an expectation that UK GDP will fall by 9 per cent in 2020, with about 7.6 million people under threat of being laid off or having their hours and pay cut. This unfortunately means we will be back to managing reward in a recessionary environment – slightly depressing when you consider that real wages only recovered from the last recession in the last 12 months. 

In this environment, reduced pay budgets make managing pay differentiation and retaining key talent hard. So do we return to the ‘peanut butter’ approach to pay allocation, spreading compensation evenly but thinly between all employees? Incentive plans have also been impacted, with realigned financial forecasts rendering existing performance goals and KPIs impossible to attain. 

To retain key talent, businesses are going to have to work hard to reassess where employees create value and how to recognise this. Consider actions demonstrated during the crisis by employees, such as regard to safety adherence, demonstration of company values while under duress or the ability to acquire new skills under changing circumstances. 

It’s also an important time to listen to employees. Some may take the view that having a job and a wage is enough. Others have willingly accepted pay cuts while valuing broader total reward provision around health and financial wellbeing at this time. But how long will this last?  

Changed talent landscape

Inevitably we are facing a different talent landscape as so much has changed in our workplaces. For some, this didn’t just mean where they worked, but their actual job duties changed. So we need to plan to review jobs and how work is done as this will impact your pay survey mapping. And we can expect some market realignment for pay too. Some companies who have made pay reductions will keep them in place. Also, an excess of talent available from a large pool of unemployed will bring rates down. Some forecasts are indicating a 15 per cent drop in market rates. 

This won’t be consistent as some sectors and companies have fared better financially. And it’s not just sector specific; smaller companies have been hardest hit financially and have had to take more cost containment actions. Which will mean some employers having the resources to lure the best talent and others not. 

Wage inequality highlighted by the crisis 

Wage disparity has been highlighted by the crisis. Firstly, between high and low earners because those who we have come to rely on most, or who have been most impacted by job losses, have turned out to be often the lowest paid in society. High earners are more than twice as likely to be able to maintain work continuity and pay by working from home. Recently PwC reported that 70 per cent of people who earn over £50,000 a year are able to work remotely, compared to just 32 per cent of people earning less than £20,000. 

At the same time the Institute of Fiscal Studies (IFS) reported that low earners are seven times as likely as high earners to have worked in a sector now shut down. Employees in protected category groups have also borne the brunt of the pandemic due to their heavy representation in frontline key worker jobs as well as those sectors hit hardest by job loss and wage continuity. As a result, reward fairness is emerging as a key concern, with employee representatives and bodies calling for action. 

Time for a new reward strategy? 

Any successful reward strategy should be inextricably linked to key business priorities. As most businesses have faced changed priorities, it’s time to take a step back and review these, understand what you will need employees to do to achieve them and how they can be best incentivised to do this. But, when reviewing reward plans, it’s also important we learn from the crisis and build resilience and agility into our plans. Compensation schemes tend to be quite static as they are often linked to the annual performance year and can be complex to change. When rewriting reward strategy, incorporating flexibility will be key.   

Navigating out of the crisis will be challenging and for many organisations survival mode will be their enforced operating model. Maintaining employee engagement and key talent against a tough economic landscape will feel like walking a tightrope. Finding the right balance to lead reward beyond crisis will be critical.  

Ruth Thomas is a senior consultant and co-founder of Curo Compensation

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