Written by
Ruth Thomas
Senior Consultant and Co-Founder, CURO
LinkedIn

19 January 2021

At the beginning of a new year, I’m often asked for predictions of what the focus should be for reward strategies for the coming months. Last year, my 2020 reward predictions questioned why compensation practices were not adapting at the same pace as businesses were evolving. What transpired was a period of intense disruption, that forced the majority of organizations worldwide to change their priorities and goals. 

Now, changing priorities and goals in 2021 means responding to and reviewing legacy compensation programs. Most legacy compensation programs were created for a different type of organization and workforce. 

Here are the five key areas of focus that you and your rewards team should pay attention to in 2021: 

  1. Retaining top talent with limited budget
  2. Moving to increased personalized pay 
  3. Understanding the direction of geographical-based pay differences
  4. Creating value with skills-based pay 
  5. Building trust with fair and transparent pay

Focus #1: Retaining top talent with limited budget

The top issue raised during our webinars last year was how teams can retain top talent with no compensation budget. For many organizations, the economic consequences of the Coronavirus pandemic mean we are back to managing reward in a recessionary, cost-constrained environment. That’s when you and your rewards team really need to optimize your reward spend - and the best way to do that is to understand what’s effective and ineffective,  and what your employees value most. 

Why? Well in the years following the last recession, we saw very weak pay differentiation (sometimes known as the peanut butter approach) with “across the board” allocations used to distribute modest budgets and correspondingly low employee engagement and retention. Most employees recognized that moving jobs was the way to get a decent pay raise. Yet, even a modest pay budget still represents a significant monetary amount. 

At this point, it’s time for a reward audit. It’s time to evaluate each element of your reward package, how much they cost, and which elements bring the most value to your employees - while having the largest business impact. You need to evaluate this ROI in terms of attracting, retaining, engaging, and rewarding key talent - and don’t take anything for granted.

 

Focus #2: Moving to increased personalized pay

Once you begin your reward audit, you will certainly find that different types of employees will value different reward elements. This is not a new concept - but the pandemic has turned the employee experience on its head and has forced us to respect individual differences, including: home lives, caring responsibilities, skills, mindsets, and personal characteristics. This contradicted the pre-crisis approach of most HR and reward policies that treated employees as a relatively homogeneous body. 

2021 will continue to be characterized by transitioning workforces. For example, ‘temporary’ remote work for many remains a reality while others are settling into more permanent hybrid workforce categorizations - and are restructuring reward in response. This specific transition includes a broader reward offering with more options around wellbeing benefits to suit individual circumstances. HubSpot is one of multiple tech giants that has defined its hybrid roles with correspondingly tailored compensation packages.


Focus #3: Understanding the direction of geographical-based pay differences

For those organizations committing to maintaining remote work for the longer term, (Microsoft, Twitter, Facebook and Square have been added to the list) reviewing how to manage geographical pay differences is at the top of the agenda. Do you adjust an employee’s pay because they are working remotely from a low cost location compared to their high cost office location? Facebook took an early lead by announcing in May that staff salaries could be adjusted to align with the cost of living in their chosen remote work location.

Other teams are taking a more considered approach with predictions that pay will gravitate to national averages when geography no longer becomes a component. Remote-first companies like HelpScout were ahead of the curve here, already asserting that geography plays no role in determining the intrinsic value of work. This will continue to be an interesting ethical debate that will play out throughout 2021.

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Focus #4: Creating value with skills-based pay

Even before the current global crisis, exploring new technologies and ways of working were disrupting jobs and the skills that employees need to do the jobs. Skills were already becoming the latest currency in the market for talent, and paying for skills or skill acquisition rather than jobs was already a reward debate. Then, as workplaces transformed at pace, the need for rapid skills acquisition hit home. This transformation has accelerated the need to create a talent marketplace that improves internal talent mobility and creates a skills ontology to identify skill gaps in the workforce. Technology-enabled platforms are emerging, typically powered by AI, to address talent gaps and surpluses. Organizations are also empowering employees to connect the skills and interests they have to the right opportunities, benefitting both the individual and business. A stronger understanding of skills and how they create value in your organization will help to pave the way to your skills-based pay structure.

 

Focus #5: Building trust with fair and transparent pay

The last focus I want to touch on is being transparent with your team. During the crisis, many organizations created a level of transparency and trust amongst their workforce that hadn’t been widely apparent before. We spent time explaining why we had to make the various changes that impacted our employees’ work life and family life. A great example of this was the number of employees who willingly accepted pay cuts – something that was unthinkable before the pandemic. It’s crucial to carry on this spirit of trust and affiliation as part of your company culture now and beyond the new year. 

While COVID-19 was an ample leveller in many respects, the crisis has also highlighted the inequalities that sit at the heart of our societies and workplaces. The impact of the pandemic on low income and minority workers is clear. And does not sit well with the move to considering broader environmental, social and governance (ESG) concerns with organizations redefining their purpose to generate a positive impact on society. This was demonstrated in a statement issued in June of last year by the US Business Roundtable (a group of nearly 200 Chief Executives, including the leaders of Apple, Pepsi and Walmart) and also by Deloitte who introduced the concept of the Social Enterprise in their 2018 Human Capital Trends

With this essential conversation happening at the board level now,  it’s time to review wage equality between employee groups, undertake a proactive pay equity audit and build on the trust and affiliation earned during the crisis with continued transparency.

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Reward in 2021 should be resilient and adaptable

As you reflect on your 2020 HR activities and outcomes, and review your reward processes for this year, also think about ensuring the actions that you take this year are resilient and adaptable. Establish reward processes that can withstand the unexpected and can adapt to your changing business priorities. 

We need to emphasize the power of broader compensation and reward programs that treat our employees as valued individuals, keep emotional wellbeing in the forefront of our company culture , allow for flexible working arrangements and foster collaborative, supportive and agile teams in order to ensure sustainable growth for 2021 and beyond.

 

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