5 Compensation Trends to Watch in 2021

Five compensation trends in 2021 emerged prior to, and as a result of, the impact of the Coronavirus on the workplace. These trends include the changing demographic composition of the workforce and the corresponding need to introduce innovative approaches to attract and retain talent. Companies that adopt multiple strategies to accommodate various employee groups are far more likely to find success in navigating an evolving and complex business environment.

TREND 1: PAY EQUITY

An emphasis on and desire for pay equity is the most frequent—and common—emerging trend. Pay equity can mean several things, but most often refers to addressing the gender or racial pay gap to determine potential bias in a compensation plan and ensuring comparable pay for employees performing similar work.

With a growing number of legal challenges expected, organizations are increasingly conducting analyses to determine where pay gaps or pay patterns exist based on gender, race, and age, and developing programs to address these pay inequities. The steps may include promotions, salary increases, and equity adjustments. Some of these actions may have been taken in earlier years, but are now being prioritized and done with more rigorous research methodologies. By analyzing the gender pay gap and overall pay patterns in a more systematic way, employers can better understand pay bias and pay gap inequities in the compensation of women, minorities and protected classes.

TREND 2: VARIABLE PAY TO REWARD PERFORMANCE

James E. Rocco, Managing Consultant for JER HR Group, says “There is a greater use of variable pay to reward performance and less emphasis on fixed pay in the form of annual increases. These variable pay techniques include annual bonuses or incentives, quarterly bonuses, spot awards, project bonuses, and team awards—or a combination thereof”.

A key factor in transitioning from a traditional pay program to greater use of variable pay is determining where you stand in the market. Is your pay program competitive with similar organizations and the broader market? Organizations need to conduct a market analysis on all or a majority of positions to determine their market value. After determining and reviewing where your business stands, you will have the necessary information to better strategize on where to target pay for each position, and whether to use different market targets for different groups of employees (administrative, supervisory, professional, managerial, executive). Using this research & analysis methodology assures that pay is competitive and externally equitable. Pay for performance is removed from the determination of an individual employee’s base salary and only used to determine variable pay.

Through a review of performance, the organization determines the results each employee has achieved. As a precursor to this review, the employee and supervisor first need to set pre-determined goals and objectives in order to reward employees based on the performance level achieved. These may include individual, organizational and team objectives, usually in combination, and can be used at all job levels. Variable payments are typically more frequent and may be paid on a quarterly basis in the form of incentives, spot bonuses or project bonuses. These awards are often made once projects or assignments are completed.

TREND 3: PAY TRANSPARENCY

A survey conducted by Korn Ferry in July 2019 reported that 75% of human resource professionals said that transparency on pay and rewards is increasingly important. It is the organization’s responsibility to develop an effective communication strategy to answer the following questions: how is pay determined; what is the bonus structure; and who is eligible?

HR executives are challenged with how to create a strategy that supports equitable compensation and how to effectively communicate that strategy to employees. Organizations are sharing more salary information with employees than ever before, including pay information to individual employees, how an individual salary is determined, what is an individual’s salary level or salary grade/band and range; and how their position compares to similar positions at direct competitors in the broader external market, and whether their position is internally equitable with comparable positions in the organization.

TREND 4: QUALITY OF WORK/LIFE

This has been a trend for a few years and is gaining even greater strength heading into 2021. It’s a given that more than a competitive salary is needed to attract and retain skilled talent. Employees expect more and are likely to seek opportunities that include: flexible work schedules; teleworking; flexible time and leave provisions, including parental leave; training and development opportunities to enhance skills or learn new skills; and career path development.

Benjamin Laker, in writing for Forbes, noted the World Health Organization’s assertion “that stress is the health epidemic of the 21st century, and that is without considering the impact of Coronavirus on the international economy”. There is no doubt that the challenge of juggling personal and professional work lives during COVID-19 has put the issue of quality and quantity of work/life issues on the front burner for the foreseeable future.

TREND 5: SALARY INCREASE PROJECTIONS

A World-at-Work survey reported by SHRM in March 2020 highlights the following salary increase projections, inclusive of early stage COVID-19 impact.

Timing of Salary Increases

• 57% of organizations have paid or plan to pay increases in 2020
• 19% are waiting
• 17% cancelled increases

Hazard Pay related to COVID-19

• 26% are offering
• 65% not offering but some provide meals & day care options

Bonus/Incentive Pay

• 67% have paid or plan to pay
• 16% are on hold
• 8% are cancelling bonuses
• 6% never planned bonuses

Bonus/Incentive Pay — adjusting performance metrics because of pandemic

• 43% undecided
• 17% are considering but holding off
• 15% are still in process of setting
• 14% have no plans to adjust metrics

It is likely that the above trends regarding salary increase projections have further changed because of the devastating economic impact of Covid-19. More organizations are likely to delay or cancel salary increases and to defer or reduce bonus/incentive payments as they assess how the economic uncertainties resulting from the pandemic will affect their bottom line.