Major Compensation Challenges in 2021

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Major Compensation Challenges in 2021
Being aware of the challenges will engender better preparedness of HR and reward practitioners to be able to devise the strategies and alternative plans to move ahead in FY 2022.

Major Compensation Challenges in 2021

As the fiscal draws to a close and COVID-19 vaccination already a reality, there is hope all around. Many countries including India are projected to have a V-shaped recovery and uncertainties of the last 6 months are now, for the most part, behind us.

This optimism brings interesting challenges for companies’ total reward professionals. This is the time of the year last year when all the planning for annual reward exercises would have been in full swing, only to be upended a month later. How should reward professionals then approach their planning this year? What are the challenges that lie ahead? Being aware of the challenges will engender better preparedness of HR and reward practitioners to be able to devise the strategies and alternative plans to move ahead in FY 2022.

Annual Variable Pay Planning

If the companies did not take measures to update their performance goals to reflect the headwinds brought upon by COVID-19, it will be a challenge to convince the management and remuneration committees to adjust the variable pay funding thresholds now, but it must be discussed. Goals, especially the financial thresholds like revenue and profit growth should be adjusted, especially if the companies got moderately impacted. However, if companies got severely impacted, for instance in sectors like travel, entertainment, and tourism, any adjustment will still not result in variable pay funding being triggered. Such companies will do well to devise retention measures if the green shoots have returned, assuming recovery is not evanescent.

Annual Merit Increase Planning

This cyclical exercise of compensation review is also around this time for the majority of companies. Interesting dilemmas arise in this area-

  • There are companies that had not executed their last year base pay review cycle when pandemic struck, acting swiftly to freeze pay, pending visibility on how their business would be impacted. Some of them, especially the ones in services sector not majorly impacted, have since announced measures and executed merit increase in the last 6 months. They will have to consider if this is an opportunity to completely re-align the date for merit increase cycle every year, or do another midterm cycle later in the year as the one executed may have been in October to January period, and associated considerations of budget being moderated, projecting FY 21 and FY 22 impact, change management complexities and how to package the change to reap the maximum bang from the buck.
  • Companies that did not do an interim pay review will have to consider how to treat the upcoming cycle, which is already delayed by up to 12 months. While the time-lapse between their last review to the one imminent has almost doubled versus business as usual, it may still not merit to go for a higher-than-normal budget. On the contrary, a muted budget could have a strong business case. Due to pay cuts across many sectors, it is quite likely that market salary medians for jobs may have either come down or remained flat.

Work From Anywhere

As this becomes an irreversible new reality for a large portion of the workforce in services industries, reward managers are grappling with dilemmas on how to align the compensation philosophy with this new reality-

Location Premium– How to address location-based premium? Some employees may have moved to work from their native places, will the location premium apply to them? Should it be completely abolished? The difference in cost of living does and will continue to exist. If the employees move to different cities, do the cost really come down? It is a possibility that for a section of such “work at anywhere” employees, the cost in the interim would have gone up, if they did not move bag and baggage, and ended up paying for two houses. Depending on the lifestyle, especially education and healthcare needs of those with dependents, and challenges around internet connectivity in rural parts of the developing world, work from anywhere may not be sustainable for workforce in every life stage. This creates challenges of having a compensation plan that is equitable yet bespoke, and still simple to administer and govern, with existing systems and processes.

What are these challenges for nomad workforce? How do global mobility and pay for international assignments get impacted due to this?

Allowances in Work From Home Model – In some industries, compensation structure comes with allowances contingent on shift timing, stand-by or on-call conditions, and overtime. With time and attendance tracking yet to be firmed up for WFH situations, how should we compensate for such efforts? Will it be appropriate to suspend these benefits without risking fairness to those who need to be in one of these scenarios? How should the very definition of such efforts be seen in the work from home or anywhere model?

There are numerous other related areas like wellness in a distributed world and benefits reset in the new normal especially around insurances for medical, death, and disability and how the hybrid and distributed workforce would be able to avail similar standards of these benefits (like medical) when working from remote locations and it will be worthwhile to discuss many other such challenges. A dedicated article on wellness and benefits will be in order to share ideas around the same.

Note: The views expressed in this article are independently and solely of the writer as a seasoned professional of human resources discipline and in no way should be construed as views of his past or present employers.

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