Insights

Rethinking compensation in periods of volatility

Overview
Published on: September 16, 2020
Subjects:  Total compensation, Executive compensation, Boards of directors and governance

The pandemic has significantly accelerated pre‑existing trends. Should we expect to see fundamental changes in compensation management? Predicting the future is never a sure bet, but COVID‑19 might be a genuine catalyst for change.

It may also be time to take stock of some widely accepted beliefs about pay and performance. For example, ideas about “performance”, “success” and “value creation” in variable compensation programs could be redefined for more recognition of risk management and resilience. Criteria for short- and long‑term incentives could take into account things such as accelerated adoption of environmental, social and governance (ESG) measures. This approach is less volatile, and therefore more sustainable, than financial factors.

Given the issues with variable compensation in times of uncertainty, fixed compensation components (salaries, benefits, retirement arrangements) may become more appealing for both employers and the workers they hope to attract, engage and retain.

Volatility raises compensation issues that aren’t going away any time soon. That’s why every company would do well to reassess its compensation policy in light of the experience and lessons of the pandemic, and with an eye to the long term.

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