Developing a Post-Pandemic Pay Strategy

A company’s pay strategy aligns compensation resources to business goals – the strategic plans and direction of the company – and has a major impact on the bottom line of the organization.  This strategy defines how employee pay and benefits are determined considering factors such as industry competition, relative market placement, and which performance, skills, and abilities are valued and needed for success.  Pay strategy forms the foundation of the company’s compensation plan, which impacts business agility and flexibility, as well as effectiveness and competitiveness. The wrong strategy, which does not (or no longer) fit the needs of the organization can, over time, destroy the organization. A company’s compensation strategy usually does not change often, remaining consistent over time.  However, a periodic review, especially when the organization makes significant changes to its business strategy, is wise.

In response to the COVID-19 pandemic, making decisions about pay strategy has been one of the biggest challenges facing organizations. A detailed interview of top employers included responses covering the following topics:  

• Increased wages for front-line employees who were required to go to a work site due to the nature of their jobs
• Expanded leave-of-absence policies for high-risk employees (e.g., over 65, pregnant, underlying medical conditions)
• Time off to care for family members
• Time off or flexible scheduling for childcare
• Cash bonuses
• Hazard pay
• Remote work

Some companies were forced to reduce salaries, completely shut down, lay off their workforce, or implement furloughs, while other companies forged ahead, business as usual, with merit increases, incentives, and bonus pay.  The decisions have been varied and mainly industry specific, with the top priority of just surviving these unprecedented times.

Now the focus is shifting to the ongoing and uncertain process of recovery, with many companies taking a cautious, “wait and see” approach.  Evaluating pay strategy post-pandemic is vital to business continuity, requiring vigilance, thoughtfulness, and a focus on business agility.  Operating with empathy while keeping the bottom line in mind is definitely challenging; short-term decisions made now can have long-term effects for many years to come. 

Additional Considerations When Developing a Post-Pandemic Pay Strategy

Here are a few suggestions to keep in mind while developing a post-pandemic pay strategy:

• Evaluate the viability of continuing short-term pay decisions made during the height of the pandemic. Pulse surveys are useful in this evaluation, providing feedback regarding practices of other companies as to whether or not these pay practices (e.g., hazard pay, bonuses, remote work, or additional leave) are continuing. Businesses and employees are adapting to new norms while addressing new and unforeseen workforce challenges.
• Pay attention to how competitively employees in critical roles are paid to ensure the company moves forward and avoids regrettable turnover. Salary surveys are more important than ever – employers must consider pay levels and market position as the economic impact continues to evolve. Understand where cost-savings opportunities are for jobs where target pay level may be repositioned.
• As employers determine the feasibility of continued remote work and put into place longer-term plans around being in the office versus virtual work, consider localized compensation for employees moving to areas with lower labor costs. Will the overall salary structure need to be changed?  This could have a significant impact on all aspects of pay. 
• Determine if the organization has the salary budget for merit increases, incentives, and bonuses, considering both the short and long term. Employers could differentiate pay using variable incentives that are easily pulled back if goals are not met or rapidly shifting.
• Consider what workers value from the employment relationship. Consider providing new or maintaining temporary benefits programs that provide more flexibility, such as family leave and childcare.

Companies are likely to experience continued uncertainty as they understand and deal with just where the labor market and overall economy are headed, including their pay strategies.  As they do so, it is important to communicate regularly and honestly with employees, explaining the necessity of these strategies and helping them prepare for whatever the future holds.