The tension between short term actions and long term impacts has perhaps never been felt as keenly as it has in 2020. This is as true for the actions we take to protect our personal safety in the face of the coronavirus as it is for leaders of organisations acting to ensure the survival of their businesses.
The pandemic and the related economic fallout have profoundly affected lives and businesses around the world. Our way of doing business has changed. But as our understanding of the impact of this crisis has crystallised, the need to consider how today’s decisions will help or hinder the recovery becomes increasingly important.
Future success now means taking action based on the lessons learned during the response to the crisis and evolving our organisations, including the way we reward our people.
Through March, April and May we conducted three surveys with 7,660 respondents from 99 countries asking organisations about the perceived impact of the pandemic on their organisations as a whole and to their rewards and benefits programs.
As the number of cases of COVID-19 escalated, leaders became more certain about the pandemic’s impact on business – and the outlook was not bright. By May, the percentage of organisations uncertain about COVID-19’s impact dropped from 33% in March to 15%, while the organisations expecting a decline in revenue, rose from 60% to 73%.
Within this context, leaders pulled the reward levers available to them to protect the longer term survival of their businesses.
While pessimism characterised business sentiment from March through May, we also see optimism now that organisations will emerge from this crisis fundamentally changed, but intact.
One key question leaders need to ask is: what’s next for total reward programs?
In speaking with clients and drawing on our global research, we’ve identified five key areas of focus in total rewards for organisations over the next six months to two years:
1. Fit-for-purpose total reward strategy
Refining and clarifying the total reward strategy is the highest-rated area for change over the next two years. Organisations need to shift further towards differentiated rewards and increasing flexibility to enable employees to choose the reward package that best suits their individual needs.
2. Performance management programs
The speed and extremity of the changes reeked by the pandemic have seen many organisations pressing pause on some elements of performance management. Leaders remain confident that they will be able to appropriately differentiate performance and we envisage that longer term trends will reflect and build on their adaptive approach. Going forward, performance metrics will incorporate more lead indicators rather than being reliant on lag indicators while goal/target setting will be increasingly customised to specific groups, teams or individuals.
3. Short-term incentive/bonus pay design
Organisations will focus on clarifying team and individual priorities and performance objectives with particular attention paid to aligning short-term, non-financial priorities and longer-term financial performance (as part of a broader analysis of fixed versus variable pay). Challenging economic conditions through the recovery will necessitate increased communication about organisational performance results and how they affect rewards.
4. Job architecture, job evaluation, and career development frameworks
The sudden and material change to the way work is delivered prompted by the pandemic is pushing organisations to the very limits of flexible job design. And our surveys indicate that many of these changes will stick for the long term. Flexibility requires a fit-for-purpose job architecture that offers a single source of truth about work and roles, rather than different variations of content and formats cast across varied sources.
5. External pay benchmarking processes
Even in challenging conditions external benchmarking remains important, although organisations are increasingly moving away from an “extreme” market benchmarking posture to a “rational” benchmarking process that is more deliberate, focused, and streamlined. Job complexity, aligned development opportunities and future potential will be incorporated more and more to empower organisations to make decisions about the level of investment they will make in their people.
Hear from our experts how to help your organisation optimise its reward program, join our webinar Reward Optimisation for a Changing World.