Need to know:
- Employers reviewing pay and bonus strategies have a number of factors to consider in 2021.
- The Covid-19 pandemic and Brexit have created a level of risk when looking to introduce salary reviews.
- Employers may struggle to award incentive payments due to the levels of economic uncertainty.
The new year often sees many employers looking to review their pay and bonus structure, with a view to implementing changes in their new financial year in April. However the Covid-19 (Coronavirus) pandemic has impacted many employers' plans: Willis Towers Watson’s Salary budget planning report, published in December 2020, found that one-third (33%) of private-sector employers have frozen pay increases in 2020 which are expected to continue this year. Keith Coull, senior director, global data services, at Willis Towers Watson, says: “This year, employers will be looking ahead to see what further ramifications they may face. These cautious steps are seen through their tentative decisions to update pay strategies.”
Covid-19 creating uncertainty
Remote working policies and employee wellbeing support have been imperative throughout the pandemic, and many staff want this to continue throughout 2021. This may prompt organisations to adjust their pay strategies around these factors. Brett Hill, distribution director at Towergate Health, says: “Given the increased awareness of health risks coming out of 2020, employers may be forced to switch their attention to supporting the health of employees, meaning less money being spent on bonus and pay reviews. Organisations have to decide which is more important, and how to make these levels of support more balanced.”
In addition, incentive pay may also be adjusted due to issues arising in 2021, says Hill. “Pay targets and quarterly goals may be adjusted due to the financial forecast of organisations this year," he explains. "In 2020, there were many organisations that chose to freeze or delay bonus payments for the foreseeable future. The ongoing uncertainty will most likely impact this further in the coming year.”
The uncertainty this year may continue to stall pay strategies as further mobility and lockdown restrictions could lead to employers not knowing what direction they intend to go in. Sarah Jefferys, senior reward consultant at Gallagher, says: “The situation is changing in a moments notice for employers due to the Coronavirus crisis and Brexit. Forward planning is something that many organisations can not commit to."
Employers may struggle to continue to find ways to reward and recognise employees for their efforts during 2021 due to financial uncertainty, adds Jefferys. Consequently, bonuses may be more popular than a pay rise. “Paying a bonus of some kind will be a way to recognise staff through a one-time payment," she says. "Employers may begin to offer these incentives more than salary reviews if they cannot predict their financial performance accurately in the coming months.”
Brexit and ESG
Some sectors are struggling with lockdown restrictions, while others face uncertainty from the UK's exit from the European Union (Brexit). Business performance is going to be critical: so can they really afford to review and reward pay and bonuses? "It will depend on an organisation's circumstances, as for employers that operate and have workforces overseas the amount that they can dedicate to a pay package may change due to the change in hiring and paying staff in the EU," says Jefferys.
"Although organisations and their employees have been given a six-month grace period up to June 30th 2021 to get their paperwork in order, what happens after that is not clear. It is likely that right-to-work checks will be carried out and EU citizens will need to satisfy the requirements, but nothing is confirmed. The only thing that is clear is that many uncertainties remain which may cloud future pay decisions that are set to take place in the coming months."
To add to Brexit considerations and the pandemic, there is increasing pressure for organisations to adjust their pay strategies and introduce environmental, social and governance (ESG) measures. Although some organisations have already introduced initiatives to address this, 2021 may see more organisations taking action. “This year, there could be an increasing number of employers expressing their interest in ESG, which could mean organisations change their pay strategies to match these new metrics,” says Coull.
Employers may wish to incentivise this and provide new performance-pay metrics for executive teams to meet in order to earn bonuses.
Organisations may look to invest time and resources into mission statements addressing this in the coming months by integrating this into long-term compensation plans for line managers and executive teams. "Employers may look to review their strategies on a quality basis and reward those with enhanced pay packages if they showcase evidence of improving ESG priorities," adds Coull. "It is to be expected that there will be more of a demand for pay packages and reviews to be structured around this cause."
Pay equality
2020 saw an increasing number of employers publish their pay gap figures for gender, ethnicity, disability, and lesbian, gay, bisexual, transgender and queer (LGBTQ+) employees. This type of pay data and analysis will be a key issue in 2021 for employers to address, says Ken Charman, director at Uflexreward. "Organisations are now legally obliged to be monitored on their pay equality progress," he says. "Many employers are not currently in a position to do so because they do not have enough data to accomplish this.
"As the pressure grows to prove pay equality across all profiles, employers will have to respond and change. There has been huge progress of fairer pay, but that may be further improved upon by organisations utilising their data, and adjusting their pay and bonus strategy to equalise pay. It is a huge task that will certainly grow this year."
Job retention scheme
Many organisations have utilised the support that the government has offered them; the Coronavirus Job Retention Scheme statistics, published in December 2020, found that at its peak, 8.9 million employees were on furlough during May 2020. In addition to the furlough scheme, the legal minimum wage has risen, and the government's Kickstart employment scheme has been introduced.
Jefferys says: “The schemes introduced throughout the year will encourage employers to adjust their pay and bonus strategies around this. There will be an emphasis on the most affected and lower-paid people in the UK to reward them for their efforts during 2020.”
Employers dealing with the financial ramifications of the pandemic will be focused on making their way through the crisis, and consequently restructuring their pay strategies accordingly.
As many organisations look to prioritise savings jobs, employers may look to decrease the number of pay rises on offer, says Coull. “Many organisations may differentiate their pay rises in 2021 to provide salary increases only if the intentions are to secure talent," he explains. "This can help them to prioritise repaying government support costs, but also help them to put funds aside for emergency if further issues arise this year.”
Some organisations that have performed better than expected during the pandemic have already decided to repay government support costs, including retailers B&M and Dunelm. This year, many organisations may adjust their pay strategies to repay some of these funds that they received in 2020.
Employers will encounter a number of issues when looking to address pay strategies in 2021. Although it may be too early to see what actions will be introduced to change employee pay and bonus structures, 2020 has established some clear trends.
