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Compensation in Crisis

Practical Measures Organizations Can Take to Ensure Stability Amid COVID-19

For the week ending March 21, 2020, the U.S. Labor Department reported a total of 3.28 million new unemployment insurance filings. For the week prior, that number was 211,000. 

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The jobless claims for the week ending March 28 – published Thursday, April 2 – set a record for the second week, with jobless claims doubling to a total of 6.6 million U.S. workers filing new unemployment benefits.

How companies react right now can set them apart as leaders focused not only on the health of their organizations, but also as examples of stewards for their employees through the coming turbulence.

As much of the world grinds to a halt, we have all been witness to heroic levels of dedication from what have been dubbed the “front-line workers” during this crisis: health-care professionals, grocery and warehouse professionals, and delivery and transportation providers.

We have also seen much of the hospitality, service and manufacturing industries slow, prompting innovative approaches by leaders to maintain revenue streams, engage communities and take care of employees.

IMMEDIATE RESPONSES

ADPFacebook, and Workday sent their entire workforce to work from home and granted all employees one-time immediate bonus payments ranging from $1,000 at ADP and Facebook to a full two weeks of pay per employee at Workday to assist with any unforeseen COVID19-related expenses.

Tech giants Google, Microsoft, Salesforce and Twitter all made commitments to their hourly and campus support staff personnel that they would continue to be paid during the on-site shutdown, regardless of whether they were physically present to work due to site closures or any COVID19-related issues preventing on-site, in-person work. Twitter will also reimburse workers for expenses related to setting up their home office.

Amazon, which depends heavily on front-line workers in warehouses, delivery personnel, and data center staff, has increased hourly rates by $2 per hour. Whole Foods, a subsidiary of Amazon, did the same for all its hourly workers.

But it isn’t enough.

On March 30, Amazon and Instacart workers went on strike to demand additional pay and hazard pay to compensate their heightened risk exposure, and the incredible demand placed on this essential workforce during this time.

"Workers across the service industry are suffering. And yet they are indispensable during this critical time," said Veena Dubal, a labor law expert and associate professor at the University of California, Hastings College of the Law. "The fact that these strikes are happening simultaneously shows that if the companies don't meet their demands, workers have the power to shut down the supply chains."

Retail grocery chains like Kroger and Walmart will grant “appreciation bonuses” of $300 for full time and $150 for part time hourly employees.

Netflix established a $100 million relief fund to support the nearly 120,000 crew members who have lost their jobs as production schedules come to a close for the foreseeable future.

“The COVID-19 crisis is devastating for many industries, including the creative community. Almost all television and film production has now ceased globally — leaving hundreds of thousands of crew and cast without jobs,” Netflix’s chief content officer Ted Sarandos said in a statement. “These include electricians, carpenters and drivers, many of whom are paid hourly wages and work on a project-to-project basis. This community has supported Netflix through the good times, and we want to help them through these hard times, especially while governments are still figuring out what economic support they will provide.”

COMPENSATION IN CRISIS

Not all organizations will have the deep pockets to make such expenditures, so what can organizations do right now to ensure workers on the front-lines are taken care of? And what can we do to brace for impact of the coming recession — while doing the right thing and taking care of our people when they need it the most?

COVID19 / CRISIS PTO BANKS
Embrace unlimited PTO or establish COVID19-specific two-to-three-week PTO banks for all employees. If people are sick, they should stay home. Period. This is the case all the time, not only during a pandemic.

To allow for employees to do just that, organizations like Best BuyHome DepotLowe’sTargetTrader Joe’sWalmartWhole Foods, and Starbucks all granted employees an extra two to three weeks of PTO for COVID-19-related work absences.

However, the reality is that in many organizations the front-line employees now deemed “essential” do not have the security to miss work if they are sick.

In an interview with Buzzfeed, an hourly worker at Costco stated, “The government deemed us essential yet what are we getting? Our exposure level is massive. This isn’t like fires or earthquakes, it’s different now that it’s a global pandemic and normal, ordinary people are now 'essential' and we have no extra pay or benefits. If we bring it home to our parents, our children, and they get it, what is the benefit for being at work?”

Solution: Unlimited PTO. Why are we tracking the accrual and use of PTO? This is a prime example of process for the sake of a process. The amount of time required to track, monitor, approve, deny and mitigate issues around PTO is time that is wasted. Unlimited PTO is a way to ensure this process is managed between manager and employee as needs arise and allows the discretion for flexibility when necessary. At the very least, establish specific two-to-three week COVID19-related PTO banks for affected employees.

Do we really want sick employees stressed about being able to make ends meet – without a safety net to take care of themselves and their loved ones during times of crisis – or ever?

Hazard Pay
Institute Hazard Pay Policies for vulnerable or exposed employees. Hazard pay practices typically range from 2x to 3x the standard base rate for the duration of the assignment.

Hourly Rate Increases
During times of high volume and demand, increase the standard hourly rate for all affected employees by $2 to $3 per hour for the duration of the assignment.

Incentive Plan Acceleration  
To put money in the hands of people now and reduce the stress of impending performance reviews in the midst of the COVID19 pandemic, Facebook has defaulted all their employees to their highest performance rating of “Exceeds Expectations” for their current six-month review cycle. This will be an unplanned added expense for Facebook, resulting in incentive plan payouts far greater than what would traditionally happen, when a smaller percentage of workers would receive this highest of performance ratings and the increased incentive payout associated with it.

Most organizations will not be able to allocate this level of incentive payouts for their entire employee population. But, accelerating the review and payout period for annual, mid-year, or quarterly bonuses to provide for immediate payouts will help put money in the hands of vulnerable workers now, and allow organizations to reinforce the safety net of their workforce when they need it most.

If there is an individual performance component to your incentive plan design, the metrics must be recalibrated to reflect the reality of our current crisis.

Adjust Performance Metrics
Many goals set at the beginning of the year will likely not be met. Re-calibrate quotas, timelines, project deliverables and milestones to reflect the reality of our current crisis. We don’t know what is going to happen, how long it will be until we regain a semblance of “business as usual” or what “business as usual” will actually look like in two months, much less at the end of the year.

Reassess with business leaders the performance metrics traditionally used to measure and reward performance. Re-calibrate as necessary and communicate these changes transparently throughout the organization with managers and employees alike.

Lump Sum Bonuses
Provide vulnerable or essential workers with immediate lump sum appreciation bonuses. Retailers like Kroger and Whole Foods have awarded their front-line workforce lump sum appreciation bonuses to reward employee performance during this time. 

Severance
Develop and honor robust severance packages based on employee tenure.

Budget for Crisis Management
Set aside 1% of payroll in a fund for crisis management. Do this every year. Save this fund. Do not touch it. A standard compensation practice is for organizations to put aside 1% of payroll into a promotional or ad hoc market adjustment budget to be used throughout the year as needs arise. Do this also to establish a crisis management pool to assist your workforce in times of crisis.

BRACE YOURSELF

The truth is, many organizations may not survive our current climate. Those that do will likely look vastly different tomorrow than what they looked like yesterday.

Not all organizations have the deep pockets of an Amazon or a Facebook to hand out bonuses to every employee or increase hourly wages. Many industries operate on thin margins, and expendable operating capital is simply a nice-to-have.

These organizations specifically should start to consider options now to better prepare for the financial impact their operating budgets will see as a result of any forecasted downturn in their markets — and take action now in the hope you can save jobs later.

Other immediate options for consideration include:

Reduced Hours
Right now, people need flexibility. Allow employees the option to reduce their hours to four days a week, or even go part-time for the duration of the crisis. Adjust their pay accordingly.

In August 2019, Microsoft conducted a trial in Japan as part of their “Work-Life Choice Challenge” where they adopted a four-day work week. During this period, Microsoft found that labor productivity increased by 39.9% compared to the same time period in 2018. The company also implemented a limit of 30 minutes for all meetings. Estate-planning firm Perpetual Garden in New Zealand conducted a similar trial, saw similar results, and adopted a four-day work week permanently.

If employees need to go to part-time, offer that until the time comes when full-time work is again possible.

If you allow a four-day work week, consider dropping employee’s base pay to 80% of their current rate, allowing the business to save critical operating expenses now, and granting employees the flexibility now to manage the other disruptions in their lives this pandemic has assuredly created.

Freeze Pay Adjustments
To save immediate payroll costs, halt all salary adjustments and merit increases where legally permitted. If you have pay equity adjustments identified and deemed critical, move forward with those. Addressing pay equity disparities is critical and something we should continue to aggressively work to correct, budget permitting.

Freeze Incentive Payments
For non-sales staff, halt all incentive payments immediately. Employees and the organization alike must weather the financial storm together, and incentive payments to non-sales staff are not vital to maintaining the organization’s financial stability.

Freeze Promotions
Unless business critical, halt all promotional increases. If promotions are necessary, from an operational continuity perspective, communicate to the promoted employee that their salary will need to be re-evaluated in the future when financial conditions improve.

Early Buyouts
Consider buyouts for employees either approaching retirement or wanting to voluntarily terminate.

Evaluate Your High Potentials
Collect and track performance data thoroughly and often. Know who your high-performing and high-potential employees are by leveraging this data to make workforce planning decisions. If you do not currently track performance continuously throughout the year, start now. Data-driven decision making is critical in times with heightened volatility. Now is that time. Use data to determine what you want your future workforce to look like.

Executive Compensation Adjustments

Reduce executive salaries by 15% to 25%, freeze all cash and equity bonus payments and eliminate all golden parachutes.

Heightened scrutiny over executive compensation is nothing new, but in times of crisis, leaders who step up and demonstrate accountability in terms of their own pay will stand out.

In a letter published March 13, Delta CEO Ed Bastian announced he would suspend his salary for the next six months. Hotel executive Monty Bennett, CEO of Ashford, Inc., cut his own and all executive pay by 15% - but then had to let go or stop paying 95% of their staff at 130 properties nationwide.

Compensation Committee: The compensation committee of publicly-traded organizations is responsible for the oversight of executive compensation packages. Compensation committee chairs should reevaluate their crisis plans to determine potential risk.

FURLOUGHS / LAYOFFS

As we see from the increase in jobless claims, furloughs and layoffs are already underway.

Hospitality and retail employees are already being impacted in dramatic ways. Responses to assist have been equally dramatic.

Hotel chains like HiltonHyatt and Marriott all withdrew their 2020 outlook statements in March as hotel cancellations spiked around the world. Hilton has already furloughed many staff members, but has taken proactive measures by partnering with retailers who need help now. Hilton has established partnerships to expedite the hiring of their displaced workforce with grocery chain Albertson’s, Amazon, CVS and Walgreen’s, all of which are currently seeing hiring booms to meet the demands placed on them by COVID-19.

Walmart, America’s largest employer, is hiring 150,000 new associates to meet the needs of increased demand in their retail locations. Walmart is also implementing a new process to dramatically expedite hiring for key roles, such as cashiers and stockers. What is usually a two-week application cycle will be reduced to a 24-hour process.

Many companies have announced plans to aggressively hire to meet the increased demands on their services during this pandemic.

If furloughs or layoffs seem inevitable for your organization, seek these types of partnerships and establish direct channels to get your displaced workforce connected with any opportunities that may exist to help them bridge any gaps in employment.

Pay People Right Now 
It may no longer be over the proverbial water cooler, but platforms such as Blind and Glassdoor allow employees to anonymously share information on salary data, offer letters, and workplace culture. Sites like this continue to emerge and gain in popularity.

A cursory glance through sites like this show that employees are talking about what their organizations are doing to support them in the midst of this pandemic.

Anxiety levels are high, and true leaders have the chance now to differentiate themselves by putting their most valuable asset — their people — ahead of profits for as long as you can.

DISINFECT HR

We are experiencing a true cultural fulcrum point. Organizations must act tactically now in many ways, but we also have an opportunity to sit back and re-think many of our policies and practices.

Now is the time for HR professionals to act and re-center ourselves as strategic, vital voices in business strategy, business continuity and crisis management. We get to decide what to clean up and what to throw out as we design and step into this new world of work.

Nothing should ever be the same again. 

About the Author

Jeremy Spake, CCP, GRP, principal, thought leadership & strategy at Cornerstone onDemand


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