Three Big Compensation Issues for 2021

Here are three big items compensation and HR professionals are working on for 2021. In the near term, we will have to act on each of these topics. What’s more, these items are top of mind for senior leaders with our companies.  As they should be. These items can have a meaningful influence on business results and competing in the market.      

In this article are a few brief thoughts about critical compensation and rewards topics - and action that can be taken to make a positive difference.  

The three big issues: 

1.    Pay Transparency

2.    Communicating Compensation

3.    Compensation Flexibility

Pay Transparency.    More than ever before, employees expect to know how their current pay is determined, and the basis for changes.  Also, associates want clarity about salaries for other positions in the company. This does not mean employers have to publicly present a list of everyone’s salary. What it does mean is that employees want an understandable description of how pay levels are set. What is the method for deciding base salary? How much variable pay is available?   

For example: We use Pay Grades to determine the salary levels of employees. All positions fall into one of six standard Pay Grades. The level of responsibility associated with a position determines the Pay Grade. We have established a salary structure for the different Pay Grades. This means that positions in a particular Pay Grade are paid within a corresponding salary range. The range is followed for making compensation decisions, with some level of discretion by managers. This discretion is based on business results and the accomplishment of goals.     

Communicating Compensation. Employees expect direct communication with their managers about compensation. And it should be done on a regular basis. Compensation conversations every six months, for example. Consider it a routine check-in about salary, progress being made toward achieving bonus and other reward topics.   

In the past, employers would commonly make compensation conversations an annual event. Today, colleagues do not find that acceptable. To carry out more frequent conversations, HR and compensation professionals have to give managers clear direction and advice about conducting these sessions. What to say, how best to present the information. Candid conversations and proper content can serve to strengthen the employee experience and bolster the manager/employee relationship.   

Compensation Flexibility. Employers are paying more attention to the preferences and desires of employees relating to compensation and rewards. Also, employers are recognizing certain parts of their comp plans require more flexibility.    

For instance, if an employee wants a four-day work week or an extra week of vacation per year, can they trade that for an adjusted base salary? Compensation and rewards professionals are considering more innovative ways to attract and retain talented colleagues. This can mean more choices: flexibility. Instead of a bonus payout being all cash, how about half of the payout being taken in the form of extra time off for the relevant team to work on a community service project?   

In the COVID-19 era, employment has required a new degree of flexibility: schedules, work from home, compensation. Responding to COVID-19, some employers had to implement salary cuts, reduced work schedules, remote work and other measures. In some cases, bonus plans received new targets and other adjustments.  

For many employers, compensation plan changes were developed in reaction to the evolving pandemic situation and its impact on business. Going forward, more HR and compensation professionals will have a playbook ready for how to deal with future emergencies and significant business environment changes.  

For example, if there is a major event - like a pandemic - that affects a company’s performance in a period, established goals and targets may no longer be valid. Instead of announced goals, alternative measurements may be used regarding individual and company performance. Leaders may identify in advance what these alternative factors include. Once determined, those factors can be introduced in the compensation plan descriptions that are shared with eligible associates.   

Some of the flexibility items resulting from COVID-19 are here to stay. Before COVID, 5.7% of Americans worked from home full-time. In December 2020, about 26% of full-time workers (33 million Americans) were doing their jobs from home to be socially distant and avoid the virus. For certain industry sectors like financial services and technology, the percentage of at-home workers is much higher.  

As remote work becomes more normal and some employees relocate to different parts of the country, this can impact wages realized by employees. There is much discussion about whether there should be salary adjustments based on where a remote employee decides to live. Employers are developing consistent practices on how to address this flexible remote work scenario.     

Summary.  The execution of HR and compensation strategies has never been of such great importance to employers and employees. As with all critical business issues, success comes from being thoughtful, constructive and clear about how these practices are carried out.  

HR and compensation professionals are in a position to make improvements for employers and employees in the months ahead.