Insights

Compensation in the context of COVID-19 

Analysis
Published on: May 20, 2020
Subjects:  Total compensation

The extraordinary situation we are living through may lead you to re-evaluate your positions on a number of topics. Many of you had questions for us during our webinar Rémunération, la Covid-19 et après?, and we plan to answer them in a series of articles.  Keep in mind that these are not deep dives or training materials—think of them as food for thought that can help guide your decision making.

Over the next several days, we will address the following three themes:

  • Total compensation 
  • Salary management, including the annual pay raise process and individual performance management
  • Variable compensation management  

Theme 1: Total compensation management 

Organizations may be impacted to varying degrees, for better or for worse, by COVID‑19. Regardless of the scope of the impact, the current economic situation is an opportunity for all organizations to reassess every aspect of the total compensation offered to their employees and make changes as needed. This is an excellent approach for solidifying your foundation in anticipation of changes in the economic and social context in the weeks, months and even years to come.

First, it can be helpful to ask yourself the following six questions:

Do the components of my organization’s total compensation package:

  • align with our values and business strategy? 
  • take into account the conditions in which work is done? 
  • guide the behaviours and attitudes of our employees in the desired direction? 
  • promote employee retention and attract solid candidates?
  • fit within our budget? 
  • set us apart from our competitors and give our organization a strategic advantage on the job market?

Every organization is different, but the answers to these questions will help you make the best decisions for your specific situation.

“Our organization has been hit hard by the pandemic, and we need to take action”!

Many organizations are considering suspending an existing compensation program or requiring employees to use their accumulated hours or even their vacation time. Depending on the type of program that may be suspended, it could be wise to consider the short-, medium- and long-term impacts of suspending the program and verify whether doing so will pose a legal risk to the organization or tarnish its reputation. Regardless of their situation, all organizations must comply with the Act respecting labour standards and protect their employer brand.

If the financial health of the organization is compromised and the organization decides to suspend specific benefits, what would be the negative impacts? The definition of benefits is broad. Typically, we mean a group insurance plan and retirement plan. In some cases, especially in unionized environments, the employer signs an agreement concerning these plans and is unable to modify them unilaterally. In other cases, if the employer decides to unilaterally modify these plans, they must do so with a long-term perspective as part of a global strategy; it is not a simple task to modify these plans (amending agreements with insurers, communicating with employees, making changes to administrative systems, etc.), so there needs to be a good reason beyond the crisis for doing so. If you include “perks” such as cellphone bill reimbursement under the umbrella of suspended benefits, employee perceptions may be negative and this will impact your employer brand, unless it is a temporary measure and very clearly explained.  

What about organizations that are doing well? 

These organizations are facing different challenges, especially those that have had to put in place bonuses. We will cover this topic in our next article, but keep in mind that even organizations that are not being negatively impacted by the current economic context may also benefit from reviewing their total compensation packages to ensure that they are in line with their business strategy.

What if you’re somewhere in between?

We tend to focus on businesses at either end of the spectrum—those benefitting from this situation and those that are bearing the brunt of the repercussions—but many companies are somewhere in the middle (business has slowed down, but it’s still sustainable). It’s perfectly fine to think about the main measures to take and how to strike the right balance in managing your compensation.

Right now, thanks to government programs (CEWS for companies whose monthly revenue has dropped by 30% or more), many in the middle are in a manageable position. However, employers must still control costs and essentially have to choose between temporary layoffs and reducing hours/compensation.

Every company has its own challenges and particularities, but it is crucial to keep in mind that employees will judge their employers based on how they have been treated; it’s a real test to see how a company’s stated commitment to valuing employees plays out in difficult situations. Organizations invested in employment branding campaigns before the crisis, but in times like this, an organization’s values and culture take on their full meaning. Organizations need to walk the walk, not just talk the talk. But the reality is that the limitations imposed by the state, a drop in productivity and skyrocketing production costs are impacting most companies.  

What actions should be taken in terms of compensation to ensure the longevity of these businesses? 

First, all companies experiencing hardship to varying degrees must reassess their objectives and expectations. The profit margins for 2020 will not be the same as those for previous years. That being said, companies must remain sustainable. Depending on the proportion of total compensation costs in the overall operating costs, decisions may have to be made: temporary layoffs, reduced work hours, salary freezes, managerial pay cuts, etc. The important thing is to make these decisions from a long-term strategic standpoint and mitigate the negative impact on the company’s recovery. We will talk about this topic in an upcoming article. 

Telework

One of the most important aspects of total compensation is the work environment. Given the current context, employers have had to mandate telework on a full-time basis, often for a significant portion of the workforce.

In our opinion, telework is not going away after COVID-19. In a post-COVID-19 world, employers will need to decide whether teleworking is a choice left to the employee (where telework is possible) or whether the employer should handle decisions relating to telework, in which case they will need to develop a telework policy.

Before COVID-19, telework was a perk that had as much to do with indirect compensation as it did with the environment and organizational culture. After COVID-19, employers that do not offer telework or are very strict about it will be less appealing.

Key takeaways

In conclusion, decisions about compensation and operations (procedures, rules, communication, etc.) must:​ 

  • Align with the organization’s budget
  • Fulfill the organization’s legal compliance obligations ​ 
  • Be consistent (consistency between compensation elements) ​ 
  • Promote positive perceptions among employees and managers ​ 

These decisions will have a greater impact, and a positive influence on employee attitudes and behaviours, if they are viewed as equitable despite the difficult situation—hence the importance of proper management and communication around compensation.

Watch for our next article in which we answer your questions on salary management, including the annual pay raise process and individual performance management.

Watch our webinar

Have questions?  

Our professionals are here to help. Don’t hesitate to reach out to our experts, who can help you develop creative communication and compensation management strategies for navigating through exceptional circumstances to a gradual reopening.

We can also assist you with the pay equity process, which remains mandatory.

We would like to reiterate our commitment to assisting and advising you. Our teams are fully operational and ready to provide the same level of service our clients expect from us.

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