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July 29, 2020 | Report
As organizations continue to navigate through the COVID-19 challenges, many of them are planning for the postpandemic recovery by applying lessons learned from the crisis. New business models and ways of working prompt organizations to rethink how they should measure and reward performance. According to some total rewards (TR) executives, one of the biggest silver linings of COVID-19 is that it provides their organizations with a rare opportunity to reevaluate TR strategies, identify areas for improvement, and enhance TR programs.
Two important implications emerged from our conversations with TR leaders and literature: First, a whole-person approach to employee well-being that incorporates physical, mental, social, financial, and emotional aspects of health1 has become more important than ever to ensure a positive employee experience; second, a nimble TR strategy and process enables organizations to respond to changes rapidly in turbulent times.
Building upon the two implications, this report provides nine TR-related tactics to strengthen employee value propositions and improve organizational resilience, aiming not only at helping organizations better respond to the crisis but also preparing them for long-term success in an unpredictable future.
1. Look beyond physical health and permanently embed all elements of well-being into benefits programs. Helping employees maintain physical health has been one of many organizations’ top priorities during the COVID-19 pandemic.2 But the mental, emotional, and financial health of workers are also crucial and should not be overlooked. As working from home becomes more prevalent, it brings its own set of unique stressors. Remote employees report higher levels of stress and are more likely to have sleep disorders than their office counterparts, a 2017 study from the International Labour Office revealed.3 Besides emotional strain, financial stress has also been aggravated by the pandemic—many companies have sanctioned layoffs and furloughs in the past several months, which in turn intensifies anxiety.
To help employees alleviate financial stress, organizations may regularly invite financial advisers to address employee questions through webinars and/or private consultations.4 When it comes to mental and emotional well-being, the 2020 COVID-19 Benefits Survey by Willis Towers Watson shows that 49 percent of the participating organizations are training managers to recognize signs of mental illness/emotional distress (e.g., anxiety, depression) and become familiar with coping resources such as employee assistance programs.5 In addition, establishing mental health services (either on site or virtual) for the workplace will allow employees to seek immediate assistance from professionals. Moreover, organizations may consider leveraging technology to enhance employee mental well-being—for example, Unilever provides employees and their families a well-being tracker to conduct mental health checks and access a variety of wellness resources.6 No matter what initiatives are implemented, organizations should not treat them as temporary measures but as an ongoing focus of their benefits strategy.
2. Increase workplace flexibility and align leadership behaviors to the policies. Almost 70 percent of the respondents to a recent survey by The Conference Board believe at least 1 in 10 of their employees will be working primarily from home 12 months after the pandemic.7 COVID-19 has spurred employees’ unprecedented demand for workplace flexibility in the long term, urging employers to rethink how to design and deploy flexible work arrangements that can better serve employees’ evolving work-life needs. Organizations such as Facebook and Google are extending their work-from-home plan until the end of the year.8 Slack has decided to become a much more distributed company, offering most employees the option to work remotely on a permanent basis.9 When it comes to increasing workplace flexibility, organizations should also account for different needs of work schedules.
Moreover, it’s essential to ensure leadership behaviors are aligned with the new policies or protocols. Prior to the pandemic, the majority of employees at a US-based global pharmaceutical company chose not to work from home despite its remote working policies and readily available technology. The primary reason was that all senior leaders preferred in-person interactions and still came to the office daily. It was COVID-19 that altered employees’ perception of flexible working and convinced them to fully embrace it: during the pandemic, the senior leaders hosted weekly town halls from their home rather than the company studio, making employees feel psychologically safe to perform their own tasks virtually as well.
3. Take advantage of the momentum to customize TR programs tailored to individual or group needs. In response to the COVID-19 outbreak, organizations have moved swiftly to supplement support programs and leave benefits, such as reimbursement for work-from-home equipment or temporary increase in sick leave entitlements, to meet the various needs of employees.10 For many, these changes are likely to continue after the pandemic eases. The Conference Board COVID-19 Survey shows that, in the recovery phase, HR policies is one of the top five areas where HR executives expect to see the most significant changes.11
When planning for policy changes, TR leaders should consider aligning rewards with employee preferences—research shows that organizations offering personalized rewards programs demonstrated positive business results.12 Even prior to the pandemic, Patagonia, for example, has seen a rise in performance and productivity by providing an innovative rewards model that aligns with its culture, identity, and employee needs. Its TR package includes, but is not limited to, a surfing policy that allows employees to surf or enjoy other sports during work hours and extensive family benefits such as on-site day care for working parents to support parenting and/or breastfeeding.13 A growing number of organizations are using or planning to use artificial intelligence (AI) to personalize communication, design, and delivery of TR programs, recent research from The Conference Board reveals.14
4. Continuously monitor business situations and adjust performance targets accordingly. Regardless of size and industry, an enormous number of organizations across the world are affected by the COVID-19 pandemic. To appeal to changing consumer behaviors and meet demand for different products or services, many of them have decided to temporarily (or permanently) shift business objectives or operating models, resulting in compromised supply lines, restructured distribution channels, and realigned equipment or skills.
In light of these effects of COVID-19, most organizations have encouraged employees and managers to revisit (and reset if necessary) their goals to ensure they still reflect the business reality and align with the organization’s purpose and values.15 For organizations with pay-for-performance compensation structures, adjusting employee goals and performance metrics in a proper and timely manner becomes especially important. Closely monitor economic conditions and rely on recent employee performance data to predict future organizational performance, at least in the short term. One US-based global mass media company discussed internally how to leverage lessons learned from the first half of 2020 to set meaningful, attainable business goals for next year.
5. Instill flexibility in incentive plans to prepare for future uncertainty. When organizations reevaluate and adjust sales incentive plans in response to the market turmoil, a one-size-fits-all approach may not work. One US financial services company decided to continue some level of a minimum sales protection (e.g., setting a floor at 80 percent of the sales quota) through the year to ensure they maintain a strong sales force amid the crisis. A US-based global consumer goods company chose not to continue a sales floor after implementing it for several months; instead, it proposed to pay all sellers, except those from severely disrupted divisions, based on the actual sales they achieve. A US multinational food corporation is evaluating its sales incentive plans every month based on the most recent 12-week trend. Both motivation and equity are important elements in compensation design; when adjusting incentive plans, ensure the changes are both equitable for all contributors and effective in motivating both high and low performers without creating free-riding problems.
6. Make greater use of nonmonetary incentives to reward employees and drive business performance. The financial implications of COVID-19 are wide ranging. US HR leaders from various industries told The Conference Board that their organizations had either already taken some cost-reduction actions or were planning to do so by July 2020, including deferring pay increases or bonuses (40 percent), eliminating bonuses (30 percent), and reducing salaries/wages (22 percent).16
While lowering cash compensation, organizations should consider making greater use of nonmonetary incentives to continue motivating and rewarding employees. As the focus on employee learning and development continues to increase,17 growth opportunities such as stretch assignments, job shadowing, volunteer projects, and leadership responsibilities should be further highlighted in organization-wide, department-led, and manager-employee communications. This is especially important in the postpandemic period, as organizations strive to reset and recover from the crisis and continue to refine their TR programs to deliver more compelling employee value propositions, all of which ultimately results in stronger business performance.
7. Evaluate and adjust pay programs as the demand for talent deployment and reskilling increases. In the wake of the global impact of COVID-19, some organizations are redeploying employees internally or with allies (sometimes even competitors) through “talent exchange” platforms (e.g., People + Work Connect18) to respond to the rapid changes in business conditions. Bringing talent deployment to scale has significant implications for TR. Organizations need to address issues in the temporary phase and make adjustments in a variety of areas, including goals and objectives, base pay, incentive plans, and tax implications.
Additionally, although talent deployment is largely based on skills matching (e.g., moving sales to customer services or recruiters to outplacement services), organizations often still need to provide training to set employees up for success in their new roles. In fact, even prior to the crisis, new ways of working and new business models were disrupting jobs and pushing employees to take on new roles or acquire new skills. The pandemic has increased the urgency for organizations to reskill/upskill their workforces both during and after the crisis. Organizations may consider adopting a skills-based compensation program to recognize and reward employees who have upskilled, either through internal training or external certification programs. A TR leader from Aon suggests that a progressive approach to skills-based compensation—offering employees in the same/similar role the same base pay and moving their pay band entirely based on changes to their skills level and deployment of those skills—might be effective in motivating and developing employees in a fast-changing environment that tends to focus less on roles but more on skills.19
8. Align pay strategy for remote workers to the overall talent and compensation strategy. COVID-19 also prompted organizations to reevaluate their approach to compensation management in the postpandemic era when more employees are allowed to work from home permanently. For example, Facebook is expecting nearly half of its workforce to work remotely in the next five to 10 years and will significantly increase remote hires.20 However, the announcement—employees relocating to locations with cheaper costs of living will receive lower paychecks than their peers in the same roles working from headquarters—has generated discussions on whether it’s appropriate to adjust compensation solely based on cost of living.
Leveraging cost of living data for salary adjustments is common but should not be the only factor that organizations consider when determining pay changes for employees making permanent relocations. Salary market data that account for various important aspects of a job (e.g., position, occupation, industry, location) will provide TR professionals with a more comprehensive picture. Moreover, organizations need to evaluate their talent attraction and retention strategy and overall compensation strategy when designing pay policies for remote workers. For example, providing equal pay to project team members with the same responsibilities, regardless of where they live, encourages everyone to make an equal contribution to the project.21 Differently, if a company based in a less expensive area aims to attract critical talent who mostly reside in larger cities with higher costs of living, it might make more sense to compensate the new hires based on where they live rather than where the company is headquartered.22
9. Revisit (and revise) temporary policies with empathy and communicate changes in a transparent and timely way. Many organizations provided frontline workers cash bonuses in recognition of their critical work during the crisis. As organizations prepare for the reset and recovery, a common question emerges: “How long do you plan to keep the appreciation pay if the virus will not disappear soon?” Similarly, a number of employees are worried that their organizations may remove childcare benefits while schools still remain closed. Some companies in the technology and retail industries have revisited their policies and decided to terminate the appreciation pay, resulting in several worker strikes in May.23 These unprecedented situations compel HR leaders to walk a fine line between organizational viability and employee experience.
In addition to government regulations and an organization’s financial health, HR and TR leaders should also consider other factors, including employee experience and employer brand, before implementing changes to the temporary policies. No matter what path(s) organizations decide to take, approaching employees through surveys, focus groups, or other listening mechanisms to first understand their needs and challenges may help improve decision making on TR offerings. When communicating changes, be concise, consistent, and transparent; employees are more likely to accept changes or new decisions when clear explanations are provided.
As organizations move from crisis management to recovery and reset, they may find the process of adapting to the new normal a great opportunity to break from the old way of thinking and improve existing processes and programs. In a postpandemic world filled with uncertainty, organizations need to continue putting the well-being of employees at the center of their talent strategy and striving to become more agile in the way they reward and engage employees.
