Navigating The “Next Normal” In Total Rewards

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Korn Ferry research shows companies struggling to balance the need for near-term cost-cutting with the longer-term need to attract top talent.

Globally, employees continue to see pay freezes, pay cuts, furloughs, and layoffs, and many businesses are not sure how long they will last. In new Korn Ferry research, approximately a third of organizations reported they had implemented, or plan to implement, salary cuts or freezes or delayed salary increases. While many companies cutting wages say the cuts will last three to four months (35 percent), an equal percentage say they have not yet determined how long the cuts will last.

In addition, nearly a third of organizations (32 percent) have implemented or are planning temporary furloughs. While 43 percent say the furloughs are expected to last three to four months, 27 percent say they do not know how long the furloughs will last. More than a third (37 percent) have either implemented or are considering permanent layoffs, affecting 10 percent of their workforces on average.

These are not the only interventions organizations are taking to control their labor costs. In addition:

• 29 percent are offering voluntary unpaid leave;

• 69 percent are delaying new hires; and

• 50 percent are reducing overtime

Since our first survey in March, we have seen a continued increase in the percentage of companies implementing reductions in pay, benefits and staff. With the uncertain path and length this pandemic is taking, it is critical that leaders monitor the situation regularly and adjust plans to meet the evolving situation, while still keeping an eye to longer-term recovery. Organizations do not want to be caught flat-footed for the recovery as many were who relied heavily on layoffs to reduce labor costs during the 2008/2009 economic recession.

Long-term changes

Many organizations have already acknowledged changes in management practices over the next year or two. Seventy-five percent of organizations have signaled the need to continue to work more virtually. More than half (53 percent) say they will be more disciplined about cost management, and 40 percent say they will be more focused on employee engagement. Moreover, a majority of organizations (61 percent) expect to make changes to their total rewards programs during the next six months to two years, with 28 percent expecting significant changes.

This pandemic, and the economic fallout it has created, also provides organizations the opportunity, if not the mandate, to accelerate changes in reward program management.  Organizations probably have more latitude—and a greater sense of urgency—to make necessary program changes than was likely the case before Covid-19. The issue is more acute for sectors such as non-essential retailers, leisure and hospitality, oil and gas and distribution organizations. They will have even more of a sense of urgency to make needed changes.

While it’s obviously better to follow your internal compass versus chasing a common market practice that is not relevant in the ‘next normal’, we know from the many client conversations and industry roundtables we’ve conducted over the past few months that understanding what others are doing remains a key input to creating new frameworks going forward. A key question is, what is next for total reward programs? Our global research and our consulting work with clients indicate five key areas of focus in total rewards over the next six months to two years. These include:

1. Fit-for-purpose total reward strategy (principles, strategy and design)

2. Performance management programs (principles, metrics, goal setting, coaching and assessment)

3. Short-term incentive / bonus pay design (eligibility, goals, targets, thresholds, exception management)

4. Job architecture frameworks (job design, career development, job evaluation)

5. External pay benchmarking processes (competitiveness strategy, aggregate benchmarking, target differentiation)

It will take time to adapt to a new way of doing business, but organization leaders must remember that, to attract and continue to engage and retain the best talent, their rewards and benefit programs must be competitive, cost-effective and clearly valued by employees —a delicate balancing act in the best of circumstances and, clearly, far more challenging today.

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