With immense economic challenges in today's environment, here
are three key steps to guide year-end compensation plans, while
preparing for continued uncertainty ahead
DUBAI, UAE, Sept. 13, 2020 /PRNewswire/ -- There is no doubt
that 2020 will go down as an extraordinary year. The humanitarian
and economic toll of the COVID-19 pandemic has been felt far and
wide. For total rewards professionals, this means year-end planning
for 2021 will certainly deviate from the norm. In fact, for some
companies the usual plan of action may be completely irrelevant.
So, how does one deal with the forthcoming cycle when everything
feels so different?
To begin, even those fortunate enough to be part of an industry
that has been largely unaffected by the pandemic, the usual tactics
are still worthy of review. Yes, some companies, such as those in
online retail or essential goods and services, may have benefitted
when the government shut down many non-essential, in-person
businesses. Even so, if business remained prosperous, it's likely
competition did as well. Therefore, companies need to assess the
rising demands of employees and deliver accordingly if they want to
retain them. Remember, the best talent always has options in the
marketplace.
Unfortunately, for many rewards professionals, the core focus
for the remainder of the year will be quite different. As the
year-end compensation cycle approaches, firms will face new
challenges and unforeseen questions that were likely not accounted
for in their 2020 strategies. As this somewhat daunting task is
tackled, it's important to remember to not bury heads in the sand —
there is much more to do this year than normal, and planning needs
to be more effective than ever before.
To that end, Aon has outlined three key steps to take to help
guide businesses through a most unusual year-end compensation
planning cycle.
Step 1: Determine Your Business Priorities
Prioritization is important when analyzing your compensation
cycle strategy. Start by defining the overarching short-term goal
of your business. If cost cutting is the top priority, evaluate
which parts of the organization are carrying too much capacity. If
operational flexibility is key, determine where you have
opportunities to shield the organization from unnecessary expenses
in the short term.
Once your top priorities are determined, you must be able to
identify the staff that you want to retain and, just as
importantly, review your ability to exit less pivotal colleagues
from the business with minimal reputational damage or disruption to
operations. However, most employers would agree that layoffs should
be treated as a last resort. Reducing your workforce may have a
further negative impact on both cash flow and morale. There are
also legal factors to consider. In some parts of Europe, for example, cutting staff can be very
difficult and expensive due to the strength of the Works Councils.
Therefore, it is common for organizations to look for alternate,
more creative ways to manage cost before even contemplating this
option. Headcount reductions could also potentially exacerbate
diversity, equity and inclusion (DEI) issues and limit pay equity
progress.
If changing your business model is the answer, have you
identified employees with the right skills and flexibility to adapt
to this new corporate strategy? If you are going to aggressively
try to capture market share left behind by failing competitors and
grow your way out of the doldrums, do you have the right sales
capabilities and talent on board to deliver? How do legislative
programs aimed at easing the impact of COVID-19 alter the path
forward for your company or the alternatives available? For
example, in the United States,
some industries, such as airlines, made commitments around
employment in exchange for government funding, while other
companies utilized supplemental federal funding for unemployed
workers to keep employees whole or above whole and increase
short-term organizational flexibility.
Whatever your business is proposing, ensure that your people and
rewards strategies are ready to support the plan in place. Rewards
professionals need to make the case to business leaders for a more
strategic approach to allocating incremental spend in advance of
2021.
Step 2: Take a Triple-Headed Approach to Your 2020
Compensation Review
Once your go-forward strategy is clear, it will provide you with
your direction. However, there is still a great deal to sort
through regarding the finer details. We recommend breaking these
challenges into two parts: What do you need to do to close out
2020, and what do you need to do to plan for 2021.
It may sound obvious, but there has never been such a clear-cut
need for effective employee communication strategies. Expectations
should be set well in advance of typical year-end processes. Move
this "to-do" item to the top of your list and make sure senior
management owns the message you wish to convey. If a wait-and-see
approach is necessary to ensure operational flexibility,
communicate early to ensure employees know what to expect and the
metrics by which leaders are guiding their decisions.
Overall, a triple-headed approach to the 2020 compensation
review will be needed. This includes:
- Identify colleagues that are behind the market
- Use a performance management system that will decide which
colleagues are top performers
- Implement a business strategy that will dictate which jobs will
be prioritized
Many organizations are increasingly applying an equal pay lens
to this part of the process by addressing internal equity before
looking at the external pay market. Social and regulatory
environments in various countries around the world, mean that
internal equity often takes precedence over external data. This
also makes it more challenging to focus pay increases on priority
jobs.
However, external data can't be ignored. If you lag the market,
it's important to be aware of this reality. When the current
downturn cycle ends (and it will), your employees will have choices
and other opportunities to pursue. Therefore, being clear about
where you sit relative to your competition is a crucial component
for planning ahead.
Step 3: Reevaluate Your Target Setting for the Future
In addition to closing out 2020 as strongly as possible, firms
need to have a solid plan for 2021, with a focus on target setting.
You need to certify that 2021 targets are in touch with reality.
For instance, increasing 2020 results by 10% may be too low,
however, trying to bounce straight back to 2019 high points will
likely be idealistic for many companies. This year's target-setting
process requires critical thinking and the use of strong market
data to make informed decisions.
When contemplating your course of action, rewards professionals
should note that while most employees may accept a poor pay cycle
in 2021 in exchange for job security, disappointment will prevail
if the market perks up but the 2022 pay cycle still generates a
zero return. Thus, we advise you to be as proactive as possible —
planning ahead to allow the bonus pool to reignite for recovery in
2021 actually needs to happen now.
Looking Ahead
As mentioned earlier, one of the key differentiators for
engaging companies is the strength of its internal communication
program, which starts at the top. Unfortunately, employees are
likely to feel angst and disappointment due to market conditions,
making it even more crucial to engage with your leadership now,
develop core messaging and prepare workforces for what lies ahead.
By being clear and transparent, it instills a sense of trust and
gratitude that will in turn keep engagement levels high despite the
difficult business climate.
All in all, the forthcoming compensation cycle will be hard
work. Whether companies have resources to spend, job security but
no budget to offer, or in the worst-case scenario, are looking to
cut costs across the board, there is always work to be done.
However, by following these steps and carefully thinking through
compensation strategy, firms can have a solid finish to an arduous
year and hold onto a positive outlook for a brighter path
forward.
To learn more about compensation planning or to speak with a
member of our rewards consulting group, please write to
zineb.aziz5@aon.com
Author Contact Information
Martin McGuigan
Partner, Rewards Solutions Middle East and Africa
Aon
+9 714 389 6355
martin.mcguigan@mclagan.com
Stuart Hyland
Associate Partner, Reward Solutions
Aon
+44 (0) 20 7086
0625
stuart.hyland@aon.com
Joshua Ross
Partner, Reward Solutions
Aon
+1 281 882 2074
joshua.ross@aon.com
About Rewards Solutions
The Rewards Solutions practice at Aon empowers business leaders
to reimagine their approach to rewards in the digital age through a
powerful mix of data, analytics and advisory capabilities. Our
colleagues support clients across a full spectrum of needs,
including compensation benchmarking, pay and workforce modeling,
and expert insights on rewards strategy and plan design. To learn
more, visit: rewards.aon.com.
About Aon
Aon plc (NYSE: AON) is a leading global professional services
firm providing a broad range of risk, retirement and health
solutions. Our 50,000 colleagues in 120 countries empower results
for clients by using proprietary data and analytics to deliver
insights that reduce volatility and improve performance. For
further information, please visit aon.com.
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