Top C&B Trends to Look-out for in 2021

Compensation & Benefits Trends 2021
All-round Employee Wellness is a priority and blanket allowances towards taking care of physical fitness, mental and emotional wellbeing, social connect, etc., could be a part of this.

Top C&B Trends to Look-out for in 2021

Compensation is one of the key differentiating factors for an organization to remain at the top. Many studies and analysis of exit interviews reveal that one of the main reasons for attrition, especially at entry-level to middle management, is compensation. Hence, to remain competitive, devising a compensation plan that is motivating for the employees and affordable for the organization is crucial. 

“The year 2020 was challenging, unpredictable, and has affected every industry in disproportionate magnitude. HR too, as a function had to go through metamorphic change.”

New policies, systems, and processes were developed for hiring, onboarding, learning and development, managing performance, etc. In line with this, Compensation and Benefits too was looked at with a new lens by every business. It continues to evolve to keep pace with the ever-changing economic, social, cultural, and business environment.  

In the much-awaited Budget 2021, Reinvigorating Human Capital is one of the main pillars to revive the economy.  In addition, year 2021 will also see a lot of changes to the compensation structure due to amendments to the Wage Code. Does that mean that there will be some remarkable trends with an unexpected turnaround for the salaried class?  Well, we may have to wait and watch.  However, with the worst phase of the pandemic behind us, businesses resuming operations full-fledged and normalcy restored almost everywhere, there is a reason to surge ahead with positivity and expect best of opportunities and numerous possibilities.   

Some trends to look for in 2021 and beyond are:  

Revision in the Fixed and Variable components

Every company crafts its compensation strategy depending on what they would like to focus on.   It also depends on the type of industry, location, function, or level of hierarchy.  Depending on market conditions, it must retain competitiveness and flexibility.   Some change would be:

  • Basic Salary- This being the base salary, most of the retiral benefits, bonuses, etc., are linked to this. Changes to the Basic Pay, directly impacts the net take home. Till recently, there was flexibility to keep the basic salary roughly between 30 to 50% of the total CTC.  However, according to the amended rules, the basic pay should be 50% or more from the total salary effective April 2021. This will be a major change that companies should think about as it will have many repercussions, not only on the net take-home salary of employees, but also the total wage bill of the company. 
  • Minimum Wages- At present, there is no uniform minimum wage applicable for all the states in the country.   Very soon, this may be taken up and there may be a uniform minimum wage irrespective of type of city or state.   Once that is done and states also concur, all companies will have to implement the change. 
  • Allowances –The amount allocated towards some of the allowances need to be looked at from the point of view of the changed scenario. With more companies opting for work from home or hybrid working model, allowances towards transport, uniform, food/canteen etc., will not be the same for all employees, but to be opted as per applicability. Also, for the LTA, extending the block year due to reduced / no travel last year, inclusion of foreign locales could be considered for exemption.  
  • PF and Gratuity –Since these retiral benefits are linked to Basic Salary, the contribution will considerably enhance, along with the increase in Basic Pay. Companies need to be prepared to manage employee queries as they may not be able to accept and appreciate the long-term security after retirement against immediate reduction in the net pay that affects managing monthly expenses.  Similarly, companies will have to be prepared for more payouts towards Gratuity due to increase in basic salary.

Relook at Some Components to Stay Relevant  in the Renewed World

Every industry needs to revisit, revamp, and revise its compensation strategy to retain good talent, reward performance while remaining competitive and agile. The timeframe and modus operandi may differ based on focus areas and immediate need.    

  • Revert of salary freeze or restructuring done during Covid-19- Pandemic has affected almost every company and individual in various proportions and intensity.  Financial, emotional, and social consequences on organizations have been huge.   To sustain operationally, one of the options was to restructure salaries and freeze some components or go for a percentage reduction in CTC.    With everything gradually restoring back to normal, it remains to be seen if organizations are reaching the comfort zone of reverting and releasing the salary freeze in 2021. 
  • Medical Insurance –Just a few years back, a nominal premium on the health insurance cover was considered unnecessary and a financial burden.   Having realized how important it is, companies could allow for flexible medical insurance plans with two or three levels of enhanced top-up coverage.  
  • Health benefits –With more organizations opting for work from home as a perennial possibility, employee health (physical, mental, and emotional) is predominant. Work from home, though welcomed initially with open arms, later found many challenges. All-round Employee Wellness is a priority and blanket allowances towards taking care of physical fitness, mental and emotional wellbeing, social connect, etc., could be a part of this.
  • Introduce Mandatory Leave – Conventionally, the general habitual practice is to accumulate leaves up to the maximum limit.  The cause of it varies from, too much work to managers not willing to approve to individual choice of not taking leaves for whatever reason.   It is high time organizations cater a portion of annual leave towards ‘mandatory leave’, to promote work-life-balance (yes, even WFH employees need it). This will provide the much-needed respite for employees as well as cut down costs considerably for companies towards Leave Encashments.  
  • Designing packages for Gig Workforce- The expectations of the younger generation, technological advancement, nature of work, the niche skill sets required, shift in ways of working etc., have paved a way for gig work and the trend is going to continue big way. If leveraged well, this could turn out to be cost-effective for organizations. Therefore, traditional compensation structure will have to be replaced with something that works for the gig workforce; something that is flexible yet motivating enough; benefits and plans that are performance-driven as well as mutually beneficial. 
  • Social Security Benefits for Contract and other staff – The New Labour Codes provide for gratuity for fixed-term contract staff. It also stresses on extending the social security benefits on health and wellbeing on all kinds of workforce engaged with the company in any capacity.   With the social security net expanding to such an extent, going forward organizations need to adopt a wholesome approach for designing compensation and benefits ensuring due diligence and compliance.
  • Introduce new allowances and benefits –WFH is there to stay for a longer time than expected. Incidentally, not every household is conducive or designed to enable WFH.  Hence, companies will have to adopt a different approach to introduce all those benefits and allowances, for employees to support WFH and also empower them to take care of the family.

Going forward, whether increments or introducing new components, the trend will be more towards variable pay and having a basket of allowances catering to all kinds of workforce. It will be about meeting immediate needs and being mindful about the future. To keep pace with the emerging trends, new ways of working, market realities and new wage codes, Compensation and Benefits will remain the focal point of discussion and decision making for organizations.  


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