Compensation Trends for 2021

 

COVID-19 pandemic challenged every aspect of our life and society throughout 2020. It has forced companies to re-evaluate and be cautious about the compensation structure and the salary budget increment for 2021. Compensation Managers became pivotal in helping steer the organization’s response to the pandemic and contribute to the strategy for recovery 2021 and strengthen resiliency against disruption in the future. 

The pandemic led to widespread job loss but many organizations preferred pay-cut, salary freeze over layoffs, they focussed on retaining the key talents and increase productivity. When the pandemic started it was a difficult task for compensation managers to manage cost and protecting employees at the same time. This highlighted the need for organizations to increase their agility and transparency for the compensation strategy. 

The compensation trends we will see in 2021 are:

Restructured compensation and Fixed Pay: The first quarter of 2021 will continue remote work, primarily to ensure employee safety. Over the next few years, around 61% of companies could make remote working as permanent policy as its various advantages are realized. Companies have diverted these budgets for commuter allowances, cars and business travels for essential employees and restructure the rewards to a distributed workforce. Many companies are contemplating paying based on remote employee’s work location. Hence, it will be imperative for the organizations to:

  1. Review the extent of geographic differential factor into pay.
  2. Reconsider structuring pay around performance, skill demand and impact of the role to the organization post-crisis recovery. 
  3. Might also introduce more monthly allowance towards WFH expenses in coming days.

Overall industry performance plays a pivotal role in the fixed pay increase. While companies hope for return to normalcy – the fixed pay may see the lowest increase in 2021. This year will have lower compensation budget majorly because of the pandemic. For some organizations, it may be delayed implementation as it has been in 2020.

Focus on Employee well-being –  The pandemic has made employee well-being benefit a focal point for organizations. The health benefits will now become the differentiator for employers and is a fast developing tool for retention. Organizations will look into the balance between employee cost and health-

  1. Capping of carry forward leaves and encouraging employees to consume annual leaves.
  2. Policies for mental health and wellbeing, digital care solution like telemedicine, virtual care and making it an integral part of benefit structure.
  3. Inclusion of vaccinations and complimentary leave and packages for COVID-19 impacted employees and dependents.
  4. Focus on benefits for in-home child care benefits and helping employees during the financial crisis.

The focus will be on cost, tracking the benefit utilization to customize the benefit plan and ensuring ROI.

Equal Pay – A survey at WorldatWork anticipates approximately 65% of organizations will make pay equity adjustments in 2021. Equal pay will gain momentum with people negotiating hard. Companies will spend time to roadmap the key initiatives on gender balance and pay equity. This is an opportunity to do better at communicating the linkage between business performance and individual output to the bottom-line.

Long-term incentive structure – Conventional long term incentive suggests reward for performance for at least 3-year horizon. A much deeper communication is required to shift the mindset and build flexibility so that the long term gains are more lucrative than the immediate gains.

Higher compensation for critical skills – 2021 will see higher pay for higher risk roles. Differential compensation will play a significant role in talent management strategies. This results in more relevant and differentiated offerings such as enhanced learning and development opportunities to ensure talent remains competitive in the fast-changing world. With remote working possibly becoming permanent in many organizations, it is crucial for leadership to invest time and effort in having an understanding of the strategy.

Companies that do right, do well – Companies more than ever incentivizing executives to have environmental, social and governance (ESG) goals. This links between improvements to pay. We will see employees demand to have more transparency around how their pay is determined. There was a resurgence of pay transparency during the peak of the pandemic, this crisis led to job losses, anxiety and sensitivity about their pay and financial responsibilities.  However, many organizations have acknowledged these challenges and sought to provide transparency including temporary adjustment of salary freezes and reduction. 

It is a tough time taking a win-win decision for the company as compensation is a valuable tool, especially during disruptive times. The organizations have to be agile and structure compensation components according to the pace and impact. As the world fights to recover the crisis, a practical mindset throughout 2021 could help organizations to think better about their salary budget allocation and zero in what is essential for their business. 

 

Author – Moumita Ray

Moumita Ray is a human resource leader with rich experience in designing & developing strategies, processes, enhancing capabilities, and building culture to help businesses achieve its excellence.

Leave a Reply