Compensation & Benefits (C&B) trends post COVID-19
COVID-19 has dealt with irreparable blows to human lives, economy, and nations in 2020. In business management, it has not only redefined every tenet of human capital strategy but also shaken the very foundations of wisdom and beliefs on which our HR architecture is built.
Although no area of HR is completely untouched, C&B has been at the very centre of the storm, in parts because pandemic reared its head when companies were on the brink of annual performance appraisals coinciding with fiscal close, leading to planning for and paying annual bonuses, granting annual ESOPs to eligible senior management, renewing benefits plan design with the existing or new carrier, followed by annual pay review and promotion exercises.
This time of a normal year is filled with office parties and celebrations that follow the aforementioned C&B interventions, but on the contrary, in AMJ quarter FY 21 people had to suffer, at best, reduced bonuses and salary freezes, and, at worst, widespread job losses, furloughs, and pay cuts.
“As enterprises are forced to resort to survival measures centred largely around cost-cutting, the importance of cogent yet actionable C&B thought leadership and counsel cannot be overemphasized.”
While the jury is still out on how salutary and sustainable will be C&B’s transformation efforts post-COVID, here are some of the major shifts we are definitely likely to encounter.
The transformation will be clustered around four major buckets, as described under and illustrated above.
Immediate Term FY 21
- If FY 21 bonuses have not been paid pending more visibility to business financial health and cash flow requirements, Q2 will be the time to either pay them out to existing employees or if the spectre of more headwinds still looming, further defer them.
- If certain levels of employees are entitled to quarterly or monthly payments, companies will change the periodicity to half-yearly or annual. This saves the variable pay cost of exited employees.
- For quarterly goals, the targets should be staggered even more and can be significantly higher for Q3 and Q4 but much lower for Q1 and Q2, so that people on quarterly plan continue to earn bonuses throughout the year.
- Most businesses have put merit increase cycle and annual promotion cycle on hold. With some visibility on the business performance resuming, companies may start to put into action targeted retention measures for high potential talent, like promotion now with increase later, retention bonuses, ESOPs award to crème de la crème of traditionally ineligible levels, deferred time and performance vesting cash incentive plans.
- During the remainder of the year, especially towards Q4, the company will do well to budget for spend surgeon counter-offers, off-cycle increases and promotions.
- If there are in service leave encashments practices, companies may want to put this on hold or discontinue it completely.
FY 22 Planning
- Due to a climate of uncertainty, companies can reduce the thresholds for bonus funding for FY 21 full-year performance. It is need of the hour to adjust FY 21 full-year goals based on the experience of the last 4 months, as goal setting may have just begun coinciding with earnings seasons of last fiscal. This will increase the likelihood of a bonus payout next year.
- During Q2 and Q3, when annual operating planning for next fiscal kicks off, companies will have to completely overhaul the budgeting of HR costs.
- For starters, salary budgeting will need to factor in higher increases and more promotions in FY22.
- Any potential cost impacts of FY 22 changes in healthcare and other benefits like leaves and other allowances will need to be budgeted for.
- Any FY 20 provisions for changes in pay and benefits or Capex which were stopped and provisions cancelled, will need to be budgeted.
- Employees furloughed or laid off can be regularized or rehired in Q4 and FY 22 – they should be brought at nil or minimal increase over last drawn compensation and sign-on bonus in lieu of the bonus that they may have missed due to being furloughed.
Healthcare & Term Life Plans
- Healthcare plans will need to have cover for more domiciliary treatments, for both FY 21 and FY22 schemes, if required by the way for special approvals and amendments
- Needless to say, the plan should cover hospitalization costs for COVID, including diagnostics if possible.
- There should be a discussion on covering mandatory quarantine costs.
- As work from home becomes new normal in an almost irreversible way, network hospital coverage in tier 2-3 cities, cover for air or road ambulance to transport to nearest tertiary care facilities should become key factors to compare medical insurance plans.
- If companies do not provide medical insurance for ESI eligible employees, it will be about time to explore doing it even as a voluntarily paid plan or with a copayment of premium.
- As employees get furloughed, the prevalence of extending the health and life benefits for the remainder of the year on a voluntary basis will increase.
- Some life covers do not cover suicide, and as work from home exacerbates the mental health problems, it must be included.
- Work from home is inevitable and irreversible. It will be worthwhile to review the draft of this policy with a fine-tooth comb, to ensure it is comprehensive and includes provisions or subsidies for broadband one time and recurring costs, UPS, desks, laptop tables, ergonomic chairs, wired or wireless headsets.
- The entire leave policy will need to be reviewed for usability and relevance, especially the clauses related to accumulation and carry forward. The legal minimum will not be fair in FY 21, and companies should increase the carry forward and allow to utilize the leave for at least 2 additional years or pay them off in FY 22.
- Shift allowances will need to be completely changed for home workers. If they continue to work in shifts, the shift allowances may need to continue, but at reduced rates, and probably only for US shifts. However, there could be a case to discontinue it for the UK or Asia shifts. The hardship that shift allowances compensate comes from not only the shift hours but also the unearthly commuting hours, disruption to body clocks, and inability to match personal time with family’s – and most of these will not be applicable if everyone works from home.
- Standby and on-call allowances will also have different meanings as these are more relevant when a worker is compensated for being on standby when not in the office. These may be sunset for FY 21 and reviewed again after 1 year.