The forced reevaluation of both vulnerabilities and new opportunities may have been overdue for some companies and an unexpected benefit for others. But in light of those changes, it’s important to take the next step and examine some core compensation questions.
- Do we have the right executive compensation metrics to drive current, newly evolved business goals and priorities?
- Are the right leaders in place to support our changing business model or strategies?
- Given our changing business, how do we create line of sight for all employees?
- What have we learned from the pandemic about what our employees value?
- Has the virtual workforce opened up new opportunities for talent acquisition?
Just as business as usual was not acceptable in 2020, compensation as usual should not be acceptable going forward. Customer needs have changed, workforce needs have changed, and people and compensation must be realigned to match those new preferences.
Many companies have reevaluated the metrics in their incentive programs to ensure alignment with new business goals and strategies. There have been changes to the long-term incentive mix to not only mute the lingering effect of COVID-19 but to also highlight shifting attitudes about the primary objectives and attributes of long-term incentives. And these shifting attitudes aren’t confined to the executive ranks. With growing concern about the availability and needs of the broader talent pool, some high-profile companies have made public announcements regarding permanent work-from-home models and associated HR and compensation policy changes.
In fact, the Pearl Meyer survey found that while one-third of respondents currently apply “geographic differentials” to their salary structure, of those, 20% are considering modifications to their current approach. When asked outright about reducing an individual’s cash compensation if they move to a lower-cost geographic area and work from home, just 4.3% said they would do so, while 56.5% said they would not, and the balance were uncertain or would decide on a case-by-case basis.
WorldatWork’s “Geographic Pay Policies Study” found that of the 62% of organizations with existing geographic pay policies, 44% are considering modifying or have recently modified their policies due to the increase of full-time remote work. Additionally, 67% of the 503 full-time U.S. workers surveyed said they expect their compensation to reflect their location.
Bottom line: If your business strategy has changed or is evolving, so should your pay program. Reevaluate your compensation design to ensure it reflects the changes to your business model and business strategies. Every company is inherently different, and compensation and people strategies should reflect that.
Viewing these ongoing discussions and deliberations between the board and management through a lens that makes clear the right differences in your pay programs, relative to your competitors, can create a tremendous competitive advantage.
About the Author
Terrence Newth is a managing director at Pearl Meyer.