Rewards & Benefits

How employers should approach their benefits strategy during the coronavirus outbreak

Few, if any, employers anticipated that they would face a pandemic in 2020. Even fewer contemplated how it might affect their employee reward and benefits strategies. And the situation is changing so rapidly that, unless companies have agile reward strategies in place, they’re writing their compensation playbook as they go.

Based on our analysis of the situation and our experience in handling pay and rewards during crises like COVID-19, we suggest that organizations follow six guidelines as they figure out how to optimize their coronavirus pay and rewards strategy.

1. Make your employees’ well-being your top priority. Help them cope with their immediate safety and security needs.
2. Lead by example. Before making any decisions that involve employee pay, senior management should take steps to change their own compensation structure. For example, several executives announced their decision to cut or forego their base salary.
3. Treat your people like adults. Be honest and direct, and share what you can as soon as you can. Emphasize the importance of two-way conversations between leaders and their teams. Communicate frequently to reassure employees, especially if you’re implementing changes that affect wage continuity, benefits, sick leave, and other policies.
4. Take a balanced approach when considering labor cost reductions. There will be a recovery, and you don’t want to compromise your organization’s ability to rebound by reducing your workforce too far or encouraging otherwise happy employees to look elsewhere for jobs.
5. Remember that the COVID-19 crisis is temporary. Avoid overreacting; don’t take drastic actions in the near-term that would weaken your long-term prospects.
6. Tailor your actions to fit your company, region, and industry. While best practices are informative and you can learn from what other companies and industries are doing, what’s actually a best practice for your company is what’s best for you.

Korn Ferry is tracking the latest coronavirus pay and rewards trends and practices and advising companies on what their peers are doing by role, industry, and region.

Employees worry about the impact of the coronavirus on pay and rewards

A recent USA Today survey found that, despite the risks of the coronavirus, three times more Americans are worried about their finances than their health. Most American workers (80%, based on research from CareerBuilder) live from paycheck to paycheck, and the majority of the working population have saved less than $1,000 (60%, according to Yahoo! Finance). These numbers are even lower in many global markets.

Organizations are starting to build a set of agile reward strategies as part of a more comprehensive coronavirus pay and rewards program. Here is a partial list of the changes that employers are making to optimize reward spend, optimize benefit costs, and address these concerns:

• Providing catastrophe pay: Offering all employees, not just sick or health-affected employees, compensation for hours not worked due to the impact of the coronavirus.
• Updating sick leave policies: More U.S. companies now offer sick leave and other businesses are updating their benefits strategy during the coronavirus to include pay for employees who are infected and quarantined or caring for sick family members.
• Expanding benefits: Organizations are adding medical insurance coverage for employees who aren’t actively working; some are offering telehealth options and modifying employee wellness programs to accommodate social distancing mandates.
• Clarifying disability benefits for employees who contract the coronavirus: Companies are revising their coverage and limitations.
• Reviewing attendance and work at home policies: Companies have adjusted to meet government mandates for social distancing and allowing employees to telecommute from their homes.
• Planning for the impact on incentive plans: Many sellers receive the bulk of their compensation in variable incentive pay. Organizations are deciding whether to recalibrate their goals or to adjust awards when employees can’t meet their targets.

The longer the coronavirus pandemic lasts, the more concerned employees—and their employers—will become for their financial viability.

Strategies to optimize reward spend and manage benefits during the COVID-19 pandemic

There is no end in sight to the uncertainty caused by the coronavirus. For organizations struggling to contain their labor costs, we suggest a four-phase approach.

• Phase 1: Make the changes needed to support labor continuity and business realities. Assemble a cross-functional team of leaders from across the organization to develop new, agile reward strategies and tactics. The team should consider the potential impact of labor cost reduction programs.
• Phase 2: Develop a multi-pronged approach to reducing labor costs instead of relying on traditional approaches. Layoffs are often the go-to strategy, but they can have a detrimental impact on the organization’s ability to recover and on the morale of remaining employees. And, in some countries, layoffs may be impractical or even illegal. Organizations have many other options, including freezing new hiring, reducing hours, eliminating overtime, delaying bonuses and merit increases, and suspending certain benefits.
• Phase 3: Compare the financial impact of cost reduction opportunities to employee relations risks using a cross-functional team that includes representatives from legal and human resources. Some considerations for the team to mull over include the impact on engagement, litigation risk, and leader credibility.
• Phase 4: Implement the plan with care and empathy. Plan communications thoughtfully and be prepared to pivot as circumstances change and needs dictate.

These four phases will guide organizations as they focus on optimizing benefit costs and implementing a new reward and benefits strategy during the COVID-19 outbreak.

How companies are optimizing reward spend for executives during COVID-19

Many companies are taking a wait-and-see approach before they adjust their executive compensation. But the appropriate level of response depends on the industry and whether the organization has already released its plans for compensation.

Remuneration and compensation committees need to take proactive steps to address pay and rewards as they consider their benefits strategy during the coronavirus pandemic. If plans for 2020 compensation have been implemented or shared, then the committee may still make adjustments. If the compensation plan has not yet been disclosed, then it may be prudent to eliminate salary increases for the executive team.

For industries where the impact on employees or the business is high, in the short-term, organizations may want to adjust salary temporarily and suspend incentives that may be unattainable. In most other situations, organizations should monitor the situation and be prepared to make changes in line with their circumstances for 2021 to optimize benefit costs.

Other changes may be warranted to short-term and long-term incentives. Here are some options to manage the uncertainty as you adjust your benefits strategy during the coronavirus:

• Reduce the impact of the COVID-19 outbreak by adjusting financial goals.
• Consider shorter (such as quarterly) incentive plan measurement periods for performance goals.
• Widen incentive plan payout curves.
• Use a longer average stock price for setting grant levels or use last year’s share awards levels.

Korn Ferry has helped countless organizations optimize reward spend; our experts will guide your organization as you consider your coronavirus pay and rewards strategies.

Agile reward strategies to consider for sales

Most organizations expect a slowdown in sales productivity as a result of the coronavirus pandemic—but the extent of the slowdown is, as yet, unknown. Organizations should take action now to protect employees and their bottom line, but that doesn’t mean that furloughs and layoffs are inevitable. Cautiously consider what moves to make, as losing sales team members may make it difficult to meet pent-up demand during the recovery and exacerbate the effects of the slowdown.

In reviewing your sales compensation strategies, consider whether you can incentivize sellers to keep working toward more realistic goals. We advise organizations to take three steps as they review sales compensation and benefits during the coronavirus outbreak:

1. Set up an incentive compensation relief team. The team should include a variety of stakeholders, including leads from human resources, operations, sales, and finance, to consider the new benefits strategy during the coronavirus outbreak. The team will build the business case for expenditures and remediation efforts, manage decisions, and review cases as needed.
2. Identify affected sales roles or channels. The crisis may not affect the entire organization; if not, establish triggers that identify employees in need of support. Triggers may include a substantial decline in sales over a specific period or negative incentive impact.
3. Set policies and methods tailored to your sales organization. Policies should reflect your industry, market, and workforce needs. Many organizations are considering approaches like these:
   • Increasing ramp-up periods for new sales reps.
   • Redefining acceptable performance levels.
   • Providing guaranteed earnings in the form of non-recoverable draws for a set amount of time.
   • Lowering threshold performance levels on sales compensation measures.
   • Offering special incentives (SPIFs) and spot awards to sales reps for continued business development efforts.
   • Providing quota relief on new business or revenue measures.
   • Shifting incentive measures to focus on activity-based measures or measures of relationships, service, and quality.
   • Focusing attention on retaining and building existing relationships.
   • Lowering target excellence levels for top performers.
   • Increasing accelerated payment levels.
   • Removing performance links on multiple measures.
   • Rewarding salespeople for new contracts and new clients rather than billed or collected revenue.
   • Reviewing your measurement and payout periods to ensure that they align with the current environment.
   • Encouraging reps to stay with a retention bonus.

Whatever approach you choose, there are three keys to success in your relief efforts. First, establish a timeline for measurement. Second, set clear expectations for performance. Finally, only offer these incentives to employees in good standing.

Contact us for best practices on implementing a new benefits strategy during the coronavirus

Organizations should focus on leading from the top, ensuring they have implemented sound reward policies that will motivate current employees, and making the adjustments necessary to prepare for a return to normalcy and rebounding into the future.

Contact us for assistance in crafting compensation policies and benefits strategies for the coronavirus that will carry your organization through the pandemic and into recovery.