Evolving Pay Strategies in a New World of Work
In the wake of the COVID-19 pandemic, businesses have begun to transition from crisis response to reassessing their long-term strategic priorities. The economic impact of the pandemic has shown that businesses can be agile and remain competitive, allowing them to seize future opportunities.
Several myths have been debunked and management, investors and employees are all open to change. For example, some Asian organisations with traditional work cultures have shifted to more liberal ones which emphasize the empowerment of employees. Also, in the investment world, many now recognize that doing well and doing good are not necessarily at odds with each other. However, the real challenge begins as organizations seek ways to create long-term value in the New Normal, with an increased focus on optimizing spend, yet accelerating workforce change.
One of the key focus areas in ‘Spend’ coming under review is “pay”. In the 4th COVID-19 survey by Aon, nearly half of all companies are considering adjusting their pay structure to cope with a range of working scenarios. “Pay tends to be a differentiator in the competition for top talent,” says Na Boon Chong, Managing Director and Partner – Human Capital Solutions, Aon. “For businesses, achieving a balance between optimizing spend to ensure survival, and retaining and motivating their people, is going to be key.”
The world’s economies are once again beginning to reopen. While there is still a long way to go before anything like a return to normal takes place, economically speaking, businesses are taking the initiative and forming strategies to remain viable by redesigning their pay models. This is because pay has been one of the factors which has enabled organizations to remain competitive thus far.
“As organizations analyze their spend, pay has come under scrutiny,” says Na Boon Chong, Managing Director and Partner – Human Capital Solutions, Aon. “While it is credited with an employer’s ability to attract and retain talent, businesses are to reduce costs as well as using pay to help accelerate the new world of work.”
Businesses need to consider three key areas in the era of the accelerated change.
Redefine Pay Guidelines
Businesses are quickly realizing that if they are to sustain and thrive in the future, they are going to have to adapt to different working models. They will also need to adapt pay for the various working models and changing nature of work. In fact, according to Aon’s fourth COVID-19 survey, 44 percent of organizations are considering adjusting their pay structures/pay ranges for different working models. However, organizations face some challenges in redefining their pay guiderails.
Organizations should focus on:
- How to have a holistic yet effective pay philosophy to attract and motivate diverse workers
- How to build agility and relevance in the pay design for different working models and workers, and yet, maintain a coherent whole
- Which pay structure will facilitate ease of movement between working models and worker types
- How to define and benchmark ‘market value’ by different workers, and yet, meet their stability needs
- What should be the anchor to benchmark – job, skills, or person
- How to ensure the desired level of pay equity or pay ratios
Now, more than ever before, more of the global workforce is working remotely. This has implications for how employers could adapt their pay structures.
“As it has become easier for businesses to access workers in different locations, they should incorporate differentials across cities, states, countries, and tax jurisdictions to align pay spend with new post-pandemic working models,” says Ishita Goel, consultant, Human Capital Solutions – Southeast Asia, Aon. This has started to happen in the region. Aon’s fifth COVID-19 survey found that more than 90% of organisations have or are actively considering having flexible compensation programs to build and maintain an agile workforce.
To embrace flexibility, leaders should be asking:
- What level of flexibility will be optimal for the organization such that it can be delivered effectively?
- What if the organization grows in scope and scale?
- What factors should be considered for personalizing a worker’s pay?
- How do we optimize workers’ pay structure for different working models, yet cater to their needs?
- What should be the change in pay, if any, with change in a worker’s base location or skills?
Focus on Total Value
The 4th Aon COVID-19 Pulse Survey has also demonstrated that more than 40 percent of companies are planning to defer any pay-related decisions in an effort to better manage their people spend. However, this does not necessarily mean employees will be shortchanged. There is a growing focus on providing better “total pay packages” overall, not just on cash.
“Benefits have always been important but will become more-so in the future as leaders seek to keep employees safe and healthy as part of their social responsibility,” Goel explains.
To continue balancing the makeup of pay packages, while also saving costs for the business, leaders should be asking:
- How can we deliver equity across different worker types and models while enhancing its attractiveness?
- How can the pay structure deliver maximum value to both the organization and the worker?
- How can organizations and employees co-create and share value in the near term/long term?
- How can we increase efficacy of the total pay package for an individual worker with preferences across cash and benefits?
- What ROI should the organization target when optimizing pay over a longer-term horizon, including meeting stakeholder needs? How should they be measured?
To navigate the challenging future of pay and ROI, forward-thinking businesses are not only increasingly defining and adapting pay for different workers and models but also being flexible in how they customize pay.
“Businesses could look at adopting solutions such as Aon’s 10P model to navigate the future of pay and ROI,” says Goel. “The model provides guidance on different aspects of pay, including pay components, pay volatility and pay delivery, helping organisations in determining their pay strategy and guidelines in the new world of work.”
“No matter which route they choose, companies today are quickly discovering that flexibility and a holistic view of what “pay” really means, via smart design, are what will determine whether they can keep their workers engaged and sustain the business into tomorrow,” Boon concludes.