With everything that is going on as a result of the COVID-19 pandemic, it can be challenging for human resources and total rewards professionals to know how to navigate through the “new normal.”
To that end, a group of Korn Ferry consultants convened for, “COVID-19: The Best Rewards and Benefits Action Right Now and in the Future,” a WorldatWork Expert Insights session, to discuss recent research findings, as well as recommendations for moving forward.
Don Lowman, global leader of rewards and benefits, kicked the session off with a light-hearted moment — a moment, perhaps, that is sorely needed in these trying times. Given that the session was done completely virtually, he noted that he was joining from his basement à la “Wayne’s World.”
Tom McMullen, workforce rewards leader and frequent WorldatWork publications contributor, joined in the fun.
“If things get slow, I’d be up for doing a little ‘Bohemian Rhapsody’ with my colleagues,” he said.
“Party on, Don, party on, everybody,” quipped Steve Kapper, benefits leader, upon his introduction.
Getting back to the business at hand, Lowman noted that the coronavirus pandemic was not the first time that organizations have dealt with a crisis.
“Many of us have been through various economic crises before,” he said, pointing to the recession of 2001 and the financial crisis of 2008. “There were playbooks that were developed during those times, but those playbooks, while useful, need some modification in 2020. This is a humanitarian crisis and a financial crisis.”
“This started as a disruption to business, it’s not a recession yet, but all indicators are that it will be — and it could be a significant one,” Lowman said. Furthermore, the current crisis encompasses communities as well as the workplace — something that wasn’t as prevalent in other mainly financial crises of our lifetime.
Given the nature of the COVID-19 beast, Lowman led with six principles that he encouraged business leaders to keep in mind while making the decisions necessary at this moment:
- Employee well-being is top priority.
- Leaders should lead by example. For example, “as we think about pay cuts, leaders themselves need to be the first ones out of the box, if not the one’s that are making the most significant reductions.”
- Be direct; treat people like adults.
- Be balanced with labor cost reduction alternatives. Combined with the fifth principle, “we can’t cut so far into the muscle that we can’t take advantage of the rebound when it occurs — and it will occur.”
- Remember this situation is temporary and prepare for the rebound.
- Learn from others; however, “best practice” is what’s best for you. “It doesn’t mean that because the majority of companies are doing one thing that it’s the right thing for you to do.”
Delving into Data
The basis of the session was Korn Ferry’s “Pulse Survey: Impact of COVID-19 on Rewards & Benefits,” which was fielded in March. A second survey was launched on Wednesday and includes the same or similar questions.
The survey included 4,000 responses from 99 countries, with the United States having the most responses (519), followed by Turkey (340) and the United Kingdom (149). Respondents were mainly TR function managers or above and spanned various organization sizes, industries and ownership types.
During the session, quick polls were conducted on the same or similar questions included in the Korn Ferry survey. The results were mainly in line with the original survey.
What type of impact will the pandemic have on your organization’s annual business in 2020 (estimated)?
Based on the Korn Ferry survey, 28% of businesses are expecting the pandemic to have a “moderate impact” on their business, indicating a revenue decline of 15% to 30%. Another 17% said they expected a “serious impact” (a more than 30% decline in revenue), while 15% estimated a “small impact” (a revenue loss of 5% to 15%).
It is also notable that just a month ago, 33% of organizations were not yet sure what the impact of COVID-19 would be on their business, 2% predicted a “positive impact” and 5% said there would be “no impact.”
As organizations sought to determine how their business will fare during the crisis, Korn Ferry also asked if business continuity plans (BCP) were in place: 69% indicated that they did, in fact, have a BCP, though they planned to adjust it as needed. Another 10% had a BCP, but no plans to adjust it. The remaining 21% either didn’t have a BCP (4%) or hadn’t yet determined if such a plan was in place (17%).
“Having a BCP is obviously important,” Lowman said.
The survey also asked what employee groups would likely be affected from a rewards and benefits perspective. The responses showed that every group will experience some level of impact, with responses over 50% for every group (executives, middle managers, supervisory roles, clerical roles, manufacturing/operations and customer-facing staff).
“So, we can expect adjustments for all categories,” Lowman said.
What base salary actions have been implemented as a result of the pandemic?
The March survey showed that 34% of organizations had implemented (12%) or were considering implementing (22%) a salary freeze, while 20% had instituted (4%) or were considering instituting (16%) salary cuts. Delaying or deferring annual merit increases was selected by 41%, with 15% saying the measure was already in place and 26% saying it was being considered.
Amanda Wethington, workforce rewards leader, noted that while the survey was global, “the North American results followed very closely with this.”
“Organizations that have fared stronger financially or that had stronger balance sheets going into this are likely better positioned to delay vs. cut,” she added.
“Salary structure movements are not likely in the near term,” Wethington said. But as many have already or are considering delaying or deferring merit increases, it could be a good time to examine processes.
“We think there is an opportunity to consider how to balance pay within your structures and also start thinking about how to balance the budget around pay and performance,” she said. “A good question to ask is, how can you make your dollars more meaningful in this critical time?”
Wethington also noted that performance management would also likely pivot to a “new normal” as a result of the pandemic.
Mark Quinn, EMEA rewards and benefits leader, chimed in with insights on how Europe is handling base salary actions.
“When we cut the data, what we saw was probably a more aggressive approach to action,” he said. “And I think that’s in line with the way in which businesses were impacted slightly earlier in Europe than perhaps they were in North America. So, a little more into action than consideration than in the global survey.”
Quinn also pointed out that salary adjustments go “more slowly” than in North America, given that such actions require either employee or work council consent.
“Clearly, this will take longer,” he said. However, there’s already been a visible ramp up of these processes.
What variable pay actions have been implemented as a result of the pandemic?
Over a third of survey respondents indicated that they were considering or had already implemented adjustments to short-term incentives (STIs)/annual bonuses as well as sales incentives. Reducing, deferring or delaying long-term incentives (LTIs) was selected by 21% of organizations that were considering or had already implemented those measures, and 22% said they were considering or had adjusted LTI performance targets.
“We found, at a global level, organizations are more focused on consideration of actions across variable pay programs than actually delivering those actions,” Quinn said. “I think when we see the next results, we’re going to see a big ramp up toward action.”
“A lot of companies are trying to figure out what to do with their LTI grants,” Lowman noted. This is especially true given the recent stock market declines. He said there was a concern of “unintended windfalls down the road when everything recovers” if such programs are not adjusted appropriately.
“Don’t just simply say, “OK, let’s increase the number of shares so we can deliver the same value,” he said. “There are a lot of factors to consider.”
Whatever factors are considered, Quinn added that regardless of the action an organization takes on variable pay, “more than anything, it is critical to communicate, even when the outcome is uncertain.”
What benefits and leave actions have been implemented as a result of the pandemic?
At the end of March when the survey was fielded, 21% of organization had added or were considering adding some sort of pay premium, such as hazard or “hero” pay. At that time, paid leave was leading the way, with 28% of organizations putting such a program in place and 26% considering doing so.
For those organizations that were going the unpaid leave route, 38% were considering or had adopted a voluntary leave program, while 29% were considering or had implemented an involuntary program.
Notably, not many organizations were considering or adopting early retirement with no penalty (11%) and 21% indicated they had or were considering taking “other” actions.
“It goes without saying that communication is key throughout all of this,” Kapper said, noting the importance of employee well-being during the pandemic. “What a shock to the system! You could not have imagined a more perfect storm that impacts all areas [of well-being].”
With the benefits function now “front and center,” Kapper opined that there was a “huge opportunity” for HR and TR professionals to assess what programs they have in place.
“It’s a very fluid process and employers are going to need to monitor [their programs] throughout,” he said. He also added that “vendors have been very accommodating” in spinning up new services and providing support.
In the face of the impact of the pandemic, is the organization considering making any of the following adjustments?
For the survey, participants were asked to choose from this list of hiring and/or work arrangements:
- Accelerating working from home arrangements: 89% had already instituted a WFH order, while 7% were considering it.
- Delaying new hires: 53% had put hiring on pause and 26% were considering it.
- Decrease of outsourcing, contractors: 13% had already reduced its contracting workforce and 18% were considering it.
- Increase of outsourcing, contractors: 3% had upped the number of contract workers, while 7% were considering it.
- Job sharing/reduced hours: 11% had instituted this measure and 28% were considering it.
- Restructuring/organizational change: 7% of organizations had opted to go this route, while 27% were considering it.
In terms of organizations that are considering or implementing restructuring/organizational changes, McMullen posited that “we are quite likely to see an uptick in that going forward.”
In the face of the impact of the pandemic, is the organization considering making any of the following adjustments?
Survey respondents were asked to note which cost-reduction measures they had put in place or were considering using:
- Operational (non-people) cost-reduction action: This response was the most prevalent, with 28% they had already implemented measures such as travel restrictions or building development projects, and 36% considering going the same.
- Partially paid sabbaticals: 20% of organizations were either considering this option or had implemented it.
- Reduction of benefits: 21% were either considering making this adjustment or had already done so.
- Reduction of overtime: 26% of organizations had reduced overtime and another 20% were considering doing so.
- Temporary layoffs (partially sponsored by state/governments): 6% opted for temporary layoffs, while 22% were considering it.
- Permanent staff layoffs/redundancies: 4% of organizations had permanently laid off employees, while 19% were considering it. Notably, 78% were not considering such action.
- Other: 9% of organizations were either taking or considering taking other actions to reduce costs.
“At the time [of the survey], there was a lot more activity around temporary layoffs in the EU,” Quinn said. The cut data showed that 30% of European organizations had already begun laying off employees on a temporary basis, while 33% were considering it. He also noted the “substantial cost to governments” as a result of those layoffs.
But as organizations look to update their workforce management plan, Korn Ferry provided a step-by-step framework:
- Analyze the organizational structure, talent needs, pay cots, among other things.
- Set guiding principles that clarify the employee value proposition in light of the steps taken amid COVID-19.
- Develop scenario plans that include three different economic outcomes, the workforce required for each scenario and quantify the savings for each plan.
- Risk assessments associated with the chosen plan, both for the short and long term. This includes employee relations, talent retention and reputational risk.
- Create a detailed short-term plan that is ready for rapid implementation.
- Develop a long-term talent strategy as it relates to your own business context.
HR’s Biggest Challenge
With all the moving parts that must be dealt with during the pandemic, HR departments are facing many challenges. Korn Ferry’s survey indicated that the biggest challenge, by far, was the “difficulty in predicting the future workforce needs in response to the evolving economic landscape.” Nearly 50% of survey respondents selected that option, surpassing communication (about 25%) and maintaining employee engagement (about 35%).
Ultimately, Wethington said that the best path forward is really “what is right for you.”
“This is really the time to think about your organization and what you need,” she said.
Planning for Every Scenario
“Scenario planning is probably something your executive teams are doing now,” McMullen said. “The big question mark is the depth and duration of this pandemic.”
With all the various business metrics, public health data and governmental actions, not all industries will be impacted the same, he said, and therefore, “organizations responses will obviously be different.”
Still, every organization can implement a strategic reward framework that follows the same path.
The focus in this initial wave is on the here and now, McMullen said. It includes the immediate one-time expense cuts done in order to protect the bottom line, variable expense savings and delaying the big-ticket items, such as hiring.
“We’ll still hire new talent, we’ll still conduct product launches,
McMullen deemed this phase the “wake-up call opportunity,” in which organizations have the chance to address inefficiencies. This can include determining if the pay or benefits design is appropriate for an organization, if there is a visible return on investment, and so on.
“Don’t waste the opportunity,” McMullen warned. In fact, he noted that now was the right time to do the things that had previously been put off, such as cleaning up job hierarchies.
The last phase includes the “most significant interventions,” such as “right-sizing.”
Taking that even further, “we expect to see an uptick of M&A as a result of this,” he said. “Some organizations will go out of business because they weren’t healthy going into this.”
Taking Care of Your Workforce
Throughout the session, the importance of communication was brought up. McMullen also noted that empathy — whether in communication or in decision making — would be pivotal not only to the well-being of your people, but to your organization as well.
“When this is over, there will be a lot of employees looking at how [their employer] did this,” he said.
In the end, Lowman again noted the principles shared at the beginning of the presentation and the key role they can play during the COVID-19 pandemic.
“These are really important to keep in mind as you approach the decisions you have to make,” he said.
About the Author
Stephanie N. Rotondo is managing editor of Workspan and #evolve magazines.