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The pandemic and resulting economic fallout impacted lives and businesses like no other event for a generation. In response, employers adapted with agility and speed. Remote work became the norm. Companies embraced digital technologies to enhance employee safety and collaboration. However, as companies have repositioned in the marketplace, compensation and rewards programs have not kept pace.

There is a profound need for companies to reshape their approach to rewards. A successful rewards scheme will encourage the right behaviors, driving performance and focusing employees on a common purpose to deliver a business’s mission. Here are the trends most likely to impact restructuring of company pay and rewards:

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1) Aligning Purpose with Pay – Based on the idea that business leaders should serve communities along with their other stakeholders, compensation is now more closely tied to achieving a successful strategy founded in purpose. In other words, companies are striving to make a positive societal impact through environmental or social activities ─ both internal and external ─ that build a more equitable and sustainable world.

Company purpose is established by determining the impact that can be made in the markets served, a vision that is aligned with brand, business model, growth strategy, and stakeholder interests. Purpose comes to life as Environmental and Social Governance (ESG) or Corporate Social Responsibility (CSR) programs. Both activities tend to be employed by public companies, however, more private companies are following their lead. When structured well, the return-on-investment includes a better company reputation and more committed and engaged employees.

Investors, employees, and other audiences want accountability and transparency with these programs, so compensation strategy and design should include:

  • Multiple metrics or a scorecard approach to gauge accomplishment of company purpose in performance management and incentives programs.
  • Expanded use of long-term incentives since purpose-based initiatives at organizations emphasize longer-term over short-term goal achievement.
  • Eligibility for incentive participation and opportunity for more employees so they have a stake in the outcome.
  • Performance management systems incorporating more frequent feedback to employees and emphasizing employee development.

2) Skills-Based Training – Skills required for the jobs available now may be different than pre-pandemic opportunities, in part due to the accelerated adoption of digital technology. In addition, worker shortages and the drive to reduce costs have some employers leaning on automated processes and artificial intelligence (AI) to perform work formerly done with human labor. This shifts the focus to more professional, technology and “soft” skills, such as critical thinking and innovation. To retain valued employees and attract new hires from a limited talent pool, more employers are investing in reskilling and upskilling programs. Moreover, investing in people leads to greater job satisfaction and engagement.

Research shows that reskilling including training costs, time off work, and administration costs an average of $24,800 per worker. The costs of not reskilling, however, including recruiting, onboarding and severances costs likely outweigh retraining.

Therefore, rewards must be redesigned to attract future-leading skills, whether those skills are developed by updating current employees or through hiring. Rewards should be designed so that they do not over value old skills but reward future business model needs.

3) Diversity, Equity, and Inclusion (DEI) – Many companies delayed implementation of DEI initiatives during the pandemic as hiring was curtailed, limited money was available, and remote working made addressing inclusion difficult. As a result, employees continue to believe that there is compensation inequity.

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Because pay equity perceptions have such a strong influence on retention, it is imperative that organizations be more transparent with employees about pay gaps and what they are doing to close them. Be sure to include DEI metrics in compensation and incentive plans to help promote progress on these initiatives.

4) Remote Working – Most employers expect to keep some portion of their workforce remote as pandemic restrictions ease. What started as a safety practice has become an important benefit to employees who value the flexibility working from home offers.

In addition, since remote work can be done from anywhere, employers can tap into a wider talent pool. Depending on where employees work, deciding what to pay them is more challenging. If they are in a lower cost-of-living area, should they be paid less? Or should all competitive pay be based on cost of labor? Some companies are using a national median as a starting point, then layering in geographic pay differentials and occupational data. How deep the analysis becomes is based on the level of competitiveness desired.

5) Benefits & Other Rewards – As workers’ needs evolve, the value of benefits to all employees has become increasingly apparent, especially those that center around flexibility, health care and wellness. For example, employers are revising their benefit strategies to better accommodate caregiving needs by letting employees work outside the historic 9 to 5 workday and subsidizing childcare during working hours.

To demonstrate their commitment to employee health and well-being, many companies are offering wellness programs. These include subsidized gym memberships, EAP resources, telehealth options, and meditation apps to help workers manage stress. Wellness is seen to be a significant future component of employee benefits.

Special bonuses are also gaining ground in 2021. These are used to recognize and reward employees for meeting challenges during a difficult business cycle, rewarding them for the completion of an important project, or to retain top talent. And with hiring shortages in some industries, sign-on and referral bonuses are increasing.

Summary

Inflation pressures, supply chain issues, and a virus that is still unpredictable are all weighing on employers, making it difficult to predict what will happen with compensation and rewards through the end of the year. Still, companies can take several actions to keep their compensation strategies on course.

First, stay on top of labor markets and increase hourly wages periodically to meet competitive markets. Next, review pay of first- and second-level supervisors to maintain parity with hourly workers. Finally, track salaries for professional and management positions so they are competitive ─ particularly top performers, high-demand positions, and high-potential employees. Businesses learned to be flexible and resilient during the last 15 months, lessons learned that can be applied to the future of pay.

Contact Us

If you would like to discuss the future of pay and rewards, please contact Neil Lappley at (847) 921-2812 or nlappley@lappley.com. A discussion carries no charges.

What will your HR and compensation priorities be in 2021? Chances are they will look a lot different from where you started in 2020. CEOs have had to make tough choices to survive a recession not of their making. Change has been the norm.

Although flexibility and resilience will still be required heading into next year, CEOs and HR leaders surveyed about the critical issues they face are struggling with how to optimize talent and skills to deliver on their business strategies.

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In its annual CEO benchmarking report, The Predictive Index surveyed 160 CEOs about their top talent concerns. They wanted to find out: How is your organization’s health? How is senior management holding up? Is the team prepared for the work ahead? What kind of guidance are they looking for?

Surveying more than 800 HR leaders, the Gartner 2021 HR Priorities study sought to identify their key priorities to achieve business goals – namely, growth and cost optimization – in a sea of constant change. While the pandemic disrupted traditional ways of working, it also uncovered widespread skills gaps in the talent areas needed most today.

Here are each survey’s findings and their implications for the world of work in 2021:

THE PREDICTIVE INDEX 2021 CEO BENCHMARKING REPORT

  1. Many executives are leading all-new teams, as 69% of companies restructured during the pandemic. It is not surprising then that finding ways for employees to work well together is a priority. Also, new teams mean new people problems to solve. Sixty-six percent of CEOs say productivity is a major concern; this worry is an increase from 36% in 2019.
  2. Remote work is here to stay as 97% of CEOs will allow some degree of remote work going forward. Still, CEOs cite a large challenge in getting remote teams to work well together. This leads to conflict and leaders spending time mediating people issues. More important, CEOs whose operations are mostly remote believe their teams struggle to deliver on short-term and long-term strategic goals.
  3. CEOs have had to navigate entirely new business circumstances due to the pandemic. As a result, 96% overhauled their business strategy in 2020. Currently 53% of CEOS say strategy development continues as their number one priority. Moreover, 80% believe a lack of strategic clarity runs deep within their organizations. Making sure that employees understand the mission and strategy is essential to ensure teams are equipped for the work ahead.

KEY TAKEAWAYS:

  • Management of remote teams requires a people-first approach and great amounts of time coordinating and communicating to maintain company culture and to ensure teams are engaged and motivated to meet their goals. Communicate new strategic direction throughout the organization, making sure that each level thoroughly understands and can communicate the strategy to the next level.
  • Do not neglect talent strategy. This means taking inventory of current skills, minimizing those that are becoming less important, and focusing on new competencies required. Help employees learn those new skills and rework the performance management system to reflect those changes.
  • Ensure that each employee function in the organization is directly tied to company function which will anchor employees to the company’s strategic direction. Make sure incentive plan participants understand how program measures support company strategies.
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GARTNER 2021 HR PRIORITIES STUDY

  1. Building critical skills and competencies is the number one HR leader priority, cited by 68% of respondents. Gartner reports that the number of skills per job increases 10% each year and that fully a third of skills present in 2017 will not be needed in 2021. This rapid skills obsolescence cycle makes integrating effective learning into workflows challenging, especially when it may be difficult to determine future skill requirements.
  2. The second highest priority is organizational design and change management, a priority of 46% of HR leaders. Leaders report managers are not equipped to lead change, and employees are fatigued from all the change. A past focus on improving workplace efficiency has left many organizations with rigid structures and current roles that lack flexibility to meet evolving needs.
  3. A priority of 44% of HR leaders is developing current and future leadership bench strength. They comment that current leadership is not diverse, succession processes do not yield the right leaders at the right time, and leaders struggle to effectively develop midlevel leaders. Bottom line: the leadership management pipeline today is not working.
  4. Planning for the future of work is seen as a priority by 32% of HR leaders. Many say their organizations do not have a future of work strategy. They are struggling to adapt to changes in the market, such as how AI and automation will displace workers. The question that HR leaders face most often is where to start.

KEY TAKEAWAYS:

Update performance management programs to emphasize responsiveness to customer needs and build organization resilience. Make sure employees are learning the right skills. This may require more frequent and tailored revisions to learning programs throughout the organization.

  • Invest in technology and AI to improve corporate decision making and efficiencies.
  • Ensure that the diversity, equality and inclusion journey is manifested in the organization’s hiring, development, promotion and compensation programs through inclusive hiring, promotion, and compensation processes.

SUMMARY

We recognize that CEO and HR priorities cited do not apply to all organizations. Rather, you should consider your own priorities, using CEO and HR comments as a starting point, and develop solutions to address your priorities.

ABOUT LAPPLEY & ASSOCIATES

Lappley & Associates is a management consulting firm that specializes in the development and implementation of compensation programs for clients. We primarily consult with manufacturing, service, utilities, and not-for-profit organizations for medium and small-sized businesses.

CONTACT US

If you would like to discuss how these 2021 predictions may impact your compensation strategies, contact Neil Lappley at (847) 921-2812 or nlappley@lappley.com.

The year 2020 has brought many changes to the workplace, not the least of which is a rise in remote work arrangements. According to a survey conducted in October by WorldatWork and Salary.com, prior to the COVID-19 pandemic just 13% of employees worked remotely. By April, as lockdowns became the norm, 67% of employees were working remotely. Even now, with more businesses open than not, 62% continue to work from home. About 9 out of 10 of these are working remotely full time.

As employees and companies adapted to remote working, both began to see the considerable benefits. And today’s technology advances made the adjustment easier. Organizations reconfigured company computer access for off-site staff. Zoom became the most popular platform for team meetings, cross-functional collaboration, and webinars.

The remote work relationship proved to be a win-win for employers and employees alike. Workers recaptured commuting time and costs, enjoyed more flexibility to attend to childcare and other family needs, and this translated into increased productivity. Employers maintained business operations while accommodating remote work.

Once the business disruptions from the pandemic fade, many are predicting remote work will be here to stay.

In fact, a new survey from U.S.-based Enterprise Technology Research (ETR) finds the number of employees permanently working remotely is set to double in 2021 to nearly 35%.

Businesses have many good reasons to support the remote working trend including:

  • Lower costs for commercial office space, utilities, and ancillary expenses
  • Increased diversity in hiring
  • Better employee retention
  • A reduced carbon footprint with fewer people commuting
  • Expansion of the available talent pool

On this last point, remote work allows companies to recruit from a much larger pool of candidates than they currently do, as most medium and small-sized organizations recruit talent locally. Now organizations can expand their recruiting base to the entire U.S.

One impact of the pandemic has been a reported flight from big cities as professionals seek less crowded urban environments and a significantly lower cost of living (COL). According to a new study by freelancing platform Upwork, 14 million to 23 million Americans intend to relocate to a different city or region because of telework.

If these trends do indeed become reality, employers have a strategic opportunity to reframe their basis for compensation decisions.

Even so, the current question that many employers are asking is this: Should I pay someone who is working remotely in a lower COL city the same as an employee working at our more expensive central business location? The traditional thinking goes like this: built into the corporate salary structure is recognition that larger population areas generally pay more. So, will I be overpaying if I do not reduce remote salaries to reflect these COL differences?

We believe that reducing salary simply based on COL is wrong for several reasons. First, employees will not like having their salaries reduced. How they spend their money is their own business. After all, employers do not care if an employee drives a 10-year-old Chevy or a Mercedes. So, why should they care what street the employee lives on? Second, paying less than the broader market rate increases the risk employees will be recruited away. Finally, administering and communicating separate pay programs for remote employees with multiple pay arrangements can be an organizational burden.

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A better approach is to define a larger geographic area and set compensation competitiveness targets for that area, then administer pay to one set of parameters. So, instead of using competitiveness survey information for the company’s immediate surrounding geography, expand the territory that is used to determine competitiveness.

For example, if you are recruiting from a Midwest talent pool, you may want to examine salary data for Wisconsin, Iowa, Michigan, Minnesota, Illinois, Ohio, and Indiana. Both state-level data and regional data can be used to determine pay ranges for each position or job level. If you are recruiting from coast-to-coast, you can use a national median. This can offer a great advantage to organizations with a highly distributed workforce.

In any case, it is important to weigh the benefits and risks for your remote workforce and to consider how pay may vary depending on the industry, occupation and skillset required. Using a broad geographic approach for your competitive salary information is easy to administer and avoids confronting employees with a pay reduction.

About Lappley & Associates

Lappley & Associates is a management consulting firm that specializes in the development and implementation of compensation programs for clients. We primarily consult with manufacturing, service, utilities, and not-for-profit organizations for medium and small-sized businesses.

Contact Us

If you would like to discuss pay of remote employees, contact Neil Lappley at (847) 921-2812 or nlappley@lappley.com.