Resetting Pay

New data shows how the pandemic dramatically affected median pay at S&P 500 companies last year. But rebalancing it won’t be easy for leaders.

When it comes to pay, the only trend to emerge from last year is that there was no trend at all.

A new study of median pay at companies in the S&P 500 in 2020 reads like an EKG exam, with spikes of 25% or more at some firms and declines of just as much at others. Even within firms in the same industry, it jumps around—median pay rose at half of financial services firms but fell 12% for others. “The data is a real mixed bag,” says Benjamin Frost, a solutions architect in Korn Ferry’s Products business. 

But while individual companies clearly needed to do some heavy financial maneuvering during the pandemic, experts say leaders face a nagging key question on workforce pay: Now what? Indeed, Tom McMullen, the leader of Korn Ferry’s North America Total Rewards group, says rebalancing pay may be one of the greatest challenges now. “There is a lot going on with pay, and different industries and companies will be impacted differently,” he says.

That’s certainly clear from the recent study in the Wall Street Journal. Overall, 40% of S&P 500 companies saw median pay fall last year, while 27% of firms saw it increase. At 140 S&P 500 companies, the average worker made $100,000. But at roughly 50 companies, median pay was less than $30,000. Experts say factors such as pay cuts and layoffs at some firms and hero pay and hiring of frontline workers at lower-than-average wages at other firms skew the results.

With the pandemic easing in most places and companies scrambling to hire workers to meet demand, rebalancing pay won’t be easy. “Companies are hiring at the top of the market right now,” says Andy De Marco, Korn Ferry’s vice president of human resources in the Americas. That’s not only going to further skew median pay, but it also creates an awkward dynamic where long-tenured employees are being paid at or below market rates while new hires are being paid significantly above market rates.

McMullen says that pay is likely to continue rising for lower-level roles given the demand for these workers. Conversely, he says total pay for other roles may be falling given poor company performance and lower bonuses. In the United States, for example, 54% of companies expect bonuses paid out this year to be less than 90% of their target, which is lower than in previous years. At the same time, base pay increases are projected to come in at around 3%, which is flat versus previous years.

As leaders look to reset pay, Frost says two big areas of focus will be remote work and pay equity. With remote work, leaders have to work through whether they pay people based on where the office is or where they are actually working from. He says pay equity, which was already a priority, has only increased in importance since the pandemic.

Despite the challenges, Frost says there is a “huge opportunity” to revisit the employer-employee deal. He says over the course of the last year, people have reevaluated what they want from work. They are leaning into things like flexible scheduling, training and development, and purpose. “Any rebalancing of pay has to be done in the context of how you treat people,” he says.