Compensation & Benefits Trends in 2021 and beyond

Compensation & Benefits Trends in 2021 and beyond
We will see organizations having gender balance and pay equity with a conscious budget strategy as one of the important topics to address in their boardroom agenda.

The social and economic impacts of COVID-19 have forced a significant number of organizations to reevaluate their approach to compensation & benefits.

Prior to the pandemic, the outlook was strong with low unemployment, positive economic indicators, and a tight labor market. Then, almost overnight, we experienced an economic shutdown, skyrocketing unemployment, and a massive & expensive stimulus response.

While organizations have come up with different strategies to tackle or take control of the situation, a full economic recovery for everyone may still take a good amount of time.

In the meantime, organizations are learning how to do more with less. Companies are taking this as an opportunity to examine their existing programs to increase their agility, transparency, and innovativeness to develop a more meaningful and strategic approach to employee pay.

Let us look at some of the trends in compensation & benefits in 2021 and beyond.

Remote Work

The stigma previously associated with working from home has disappeared. Instead, remote work is expected to continue and increase for some industries, as the economy eventually recovers from the pandemic. This may also give a significant financial edge to many companies.

While saving money, without reducing productivity, has always been a goal of most organizations, the remote-work option has opened the idea for many organizations that employees do not have to be in the same location to perform well, or collaborate with other team members.

This thinking has provoked some employers to explore other markets to find top talent. As a result, employers in larger metros may consider hiring talent from locations with a more affordable cost of living, which can result in salary cost-savings as well as improve diversity.

They can then invest this money in other benefits that will help attract top talent, such as professional development, tuition fee reimbursement, wellness incentive programs, and childcare assistance.

The other side of remote working that is being explored by most of the organizations is the adjustment of employee pay, if they move from a high cost to a low-cost location.

However, the adjustment of compensation cannot be 100% aligned to that of the location benchmark. It would depend on how competitive the talent market is for some of these jobs. For example, it might be more economical to keep a top performer’s salary the same, especially if it’s a hard-to-fill role.

While the distributed workforce model could have a significant impact on compensation, it goes well beyond that. There are various tax and legal compliance requirements both for the employer and the employee that needs to be considered before initiating international home working policies.

Each case needs to be analyzed from the perspective of permanent establishment, personal income tax, social security, and labor law arrangements.

Pay Equity

Many organizations are putting conscious efforts to review their existing compensation policies to bring equity in compensation when employees perform the same job or role while accounting for other factors such as their experience level, performance, and tenure with the organization.

We will see organizations having gender balance and pay equity with a conscious budget strategy as one of the important topics to address in their boardroom agenda.

Also, this will not be just confined to base compensation. We will see more and more organizations redesigning their long-term incentive schemes as well by giving senior leadership teams specific targets to develop women employees to grow and have them succeed into senior/leadership positions and be eligible for such incentives.

Another important factor to consider is that the millennials, the Generation Z or the Woke generation, actively look for inclusive employers and ask about Diversity & Inclusion commitments during their interviews.

By ensuring employees are paid equitably, employers can increase efficiency, creativity, and productivity by helping to attract the best talent, reduce turnover and increase commitment to the organization.

Pay for Skills

Digital transformation and automation have brought in a disruption to such an extent that organizations’ are constantly challenged to adopt new technologies that can help them accelerate their business processes and bring in higher returns on investment.

Hence it is not just important to have great people but also updated skill sets if a company must sustain and achieve its goals in today’s fast-evolving digital space.

However, it is equally important to consider human capital and technology together, not separately. According to the Future of Jobs Report 2018 from the World Economic Forum, by 2022, more than 54% of the workforce will likely require significant reskilling and upskilling.

Hence, we will find more and more organizations incentivizing skill development to overcome potential issues or barriers in the achievement of future business strategies.

Performance Management and Incentive Design

This has been a top priority for 2021 and will continue to be the same for 2022 as well with organizations focused on making the biggest impact with limited funds.

Organizations are targeting rewards towards critical talent and strong performers who are pulling the organization through the current crisis and those with the right capabilities to sustain the organization going forward. We will also see companies moving towards a culture of performance coaching and constant feedback.

We will also see organizations focusing on a greater cause, for example, Decarbonization. Organizations will come up with a target to achieve their goal and may incentivize their employees for contributing towards its achievement.

Beyond Pay

  • Mental health support is the new normal: Employers recognize the toll the pandemic has taken on employees, with employers citing virtual fatigue and workplace burnout due to COVID-19 as significant workplace issues. If not addressed, it could lead to unexpected or more frequent work absences and injuries on the job. Employers have an important role to play in combating the stigma around mental health in the workplace and encouraging employees to seek the help they need. Many organizations have Employee Assistance Programs. It’s a massive shift in some parts of the world where mental health has not yet been a very easy topic to tackle. But we will not be able to close our eyes and pretend that those issues do not exist, and like it or not, companies will have to get ready for that.
  • Work life balance: Work and life are not independent entities fighting for 50:50 equilibrium. They’re interconnected, and one affects the other. But people, especially women, have been conditioned to design life around the demands of work, and rarely to design work around the demands of life. The pandemic has forced employers to act. They realize that care benefits are essential to employees’ productivity and success at work. We will see many organizations increase their company’s already existing childcare benefits. These may include paid access to online platforms to find care, subsidized backup care, new parent support, cash subsidies to parents, among others. Many employers have also opened their eyes to the challenges of employees who care for the elderly.

Key Takeaways

Employees now think like customers in the workplace. As a result, a “one size fits all” approach to Compensation & Benefits management will no longer work.

Moreover, Compensation & Benefits is not just an HR subject given that the size of pay budgets is likely to be set by the CEO and CFO and that senior management can veto pay structure changes that they don’t understand or buy into.

Hence it is very important to have a Total Compensation strategy that is totally in line with the business goals & values in order to succeed.


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