Rewards how 2020 is accelerating the future of rewards

COVID-19 and social change are realigning how we evaluate and compensate work. Here’s how. 

Evolutionary change is not always slow or incremental. In fact, according to science, real change often occurs through dramatic leaps forward — sometimes sparked by external factors. When we look back on 2020 through the lens of total rewards, we’ll likely see it as an excellent example of how external factors can propel us unexpectedly forward in the workplace. It has been a year of punctuated equilibrium.

Before January 2020, companies in the US and beyond were focusing on a total rewards agenda that had been slowly evolving over the decades. Priorities included rethinking salary adjustments; developing a multi-stakeholder model for performance and incentives; an increasing focus on environmental, social, and governance (ESG); evaluating skills as job currency; an emergence of pay transparency, and exploring the role of employee experience in defining total rewards.

Some months later, that agenda has shifted sharply. The COVID-19 pandemic of 2020 massively disrupted how we live. It has also challenged some fundamental assumptions about how, where, when, and even why we work.

This pandemic year has also brought a growing awareness to many of the systemic racism that still permeates society. As we collectively grapple with the violent deaths of George Floyd, Breonna Taylor, and others at the hands of police, companies have started to hold themselves more accountable on systemic issues of racial justice and equity in the workplace.

Diversity, equity, and inclusion (DEI) have therefore vaulted to the forefront for most companies — with a momentum driven by deep concerns about the effects of implicit and explicit racism, and the crisis of belonging and inclusion exacerbated by the pandemic. The employee experience is now in clear, direct conversation with a company’s DEI objectives.

While our new priorities for total rewards have roots in our pre-pandemic agenda, they have shifted, accelerated, and realigned to address the emerging needs of this altered world around us.

Here are five issues that are now leading company agendas in 2020 and that we expect to continue to lead the charge for the future of total rewards:

• Flexible work and how it shapes pay and employee experience
  
  Though many frontline jobs still lack flexibility, COVID-19 has radically changed the rules for where and when many people work. According to Mercer’s latest COVID survey on flexible working, 94% of employers say productivity has remained the same or improved since employees began working remotely. It is clear that flexibility is here to stay.
  
  Of course, flexible work is also being examined and tested. Companies are revisiting their employee value propositions (EVP) and total rewards portfolios, including compensation and benefits, career, and wellbeing. Remote work has also raised questions about flexible working pay philosophies and pay adjustments for geographic location. In our July US Comp Planning Pulse survey, most organizations (about 68%) reported that they currently use geographic differentials based on work location and plan to continue. However, as companies expand their talent reach beyond their traditional sites, pay may start to gravitate to national averages, particularly for in-demand skill sets. 


• The impact of skills on base pay and salary adjustments
  
  In the traditional job model, we primarily built our careers with limited opportunistic lateral moves. In 2020, employers have become eager to break down the limitations of job descriptions and keen to use skills to fuel organizational agility and unlock the power of their people. More companies are applying a more dynamic model built on an internal talent marketplace, where people and skills are matched up to the work that needs to be performed anywhere in the organization.
  
  This means skills will play a more prominent role in setting base pay in the future, de-emphasizing current reward criteria such as experience and accountability. Alternative forms of rewards — like incentives, recognition, and career opportunities — will be the primary mechanisms to reward performance. We will see a decreasing emphasis on measuring the success of individuals and instead see more collective measurement.


• Goal-setting and incentives in the face of financial uncertainty
  
  The multi-stakeholder model for measuring and rewarding success is also gaining ground for executive compensation. Unlike traditional revenue-dependent incentives, a multi-stakeholder model emphasizes non-financial goals and relative metrics. To support this, many companies are resurrecting balanced scorecards with non-financial goals related to ESG, DEI, and other human capital management goals.
  
  The unpredictability in the face of the pandemic also means companies are finding it difficult to set goals for even one year — let alone for the three years that is typical for a long-term incentive plan. In response, some companies are setting up multi-year periods within a given long-term incentive plan and implementing more discretion around thresholds and payouts, rather than one distinct goal point. This allows a little bit less precision in setting targets and allows for a slightly broader range for possible payouts. 
  
  In short-term compensation, some companies are also rewarding based on performance relative to other companies. Long-term incentive plans are similarly moving away from weighting and performance and emphasizing new incentives such as time-invested shares or even stock options.


• Acceleration of ESG and DEI
  
  Short and long-term incentives are also evolving quickly in response to new company goals and increased stakeholder pressure around ESG and DEI.
  
  The global pandemic and the economic distress that it has caused have disproportionately impacted underrepresented populations throughout many organizations. New goals around racial justice and a renewed commitment to the Black Lives Matter movement are leading many organizations to rethink their entire DEI strategy and hold executives accountable for action through their compensation plans. This translates to more incentive plans that hinge on improving things like gender parity and racial equity — comprising goals around representation, pay opportunities, work and promotion opportunities, and increasing a sense of belonging across the organization.
  


• Embedding pay equity and transparency
  
  Despite widespread calls by CEOs for racial justice, most organizations are struggling with true equity of opportunity, experience, or pay. An effective DEI strategy must be based on the continuous dialectic between data, analytics, and programs. Companies are no longer merely tackling pay equity as a compliance exercise, but building in multi-year goals on all three aspects (diversity, equity, and inclusion) and getting leadership alignment on the underlying culture change needed to support it.
  
  Robust analytics will be the key to success here. In 2020, we’re likely to see pay equity analytics being integrated more intrinsically into a normal compensation cycle. Pay decisions will be better informed and continuously guided by information that mitigates inequities right when they happen — such as at the new hire point or annual adjustments and promotions.

As we look to the future, these are all trends you can expect to see coming from the upheaval of 2020. What are you noticing that is changing in the wake of the pandemic and renewed social justice movements? We’d love to hear from you. Reach out to us with your thoughts.