How Do You Adjust Compensation in Response to Unexpected Economic Events?
In the dynamic landscape of economics, compensation professionals often face the challenge of adapting to sudden shifts. From the strategic insights of a Compensation Manager to the practical experiences of a Financial Wellness Manager, we've compiled five expert responses that delve into adjusting compensation during unexpected economic events. Discover how these professionals navigated scenarios ranging from post-pandemic market adjustments to performance-based bonuses during a recession.
- Adjusting to Post-Pandemic Market Rates
- Quarterly Bonus Advances During COVID-19
- Creative Retention Bonus Plans
- Compensation Changes During Financial Crisis
- Performance-Based Bonuses in Recession
Adjusting to Post-Pandemic Market Rates
The most recent example of this would be when I was working at a previous organization. As the economy began to recover following the pandemic, we saw an increase in pay rates benchmarked in the US, particularly in remote and hybrid roles. Due to this increase in market rates, we provided market adjustments that were higher than typical for our organization during our annual merit increase cycle. By giving these higher market adjustments to our existing employees, we were able to maintain internal equity while remaining competitive in the external job market at a time when finding, hiring, and retaining top talent was increasingly challenging.
Quarterly Bonus Advances During COVID-19
When we build our compensation programs, our goal is often to be consistent and dependable, such that our employees and managers are fully aware of what to expect. However, when unexpected events happen, we also need to have the flexibility to pivot and be adaptive.
In early 2020, with the rise of the COVID-19 virus, my company was fortunate enough to be one of the few companies that expanded. In fact, in a single quarter during the pandemic, our revenue exceeded the entire previous year's revenue significantly. However, we recognized that externally the situation was very different for some families. We had employees whose spouses had been laid off, who lost reliable child care, and who were caring for sick loved ones. For many of them, their household expenses were increasing just as their income was falling.
Given these challenges, we elected to provide advances on our annual bonus program payment quarterly. By changing the payment frequency, we were able to provide our employees with more consistent cash flow throughout the year, while still maintaining the consistency and dependability the program was known for. This change was very well received by our employees, who appreciated our proactive and caring approach.
Creative Retention Bonus Plans
As an HR consulting firm, we are often asked to help businesses take a creative approach to compensation, especially in the face of unexpected economic events or a shift in market conditions.
It's critical to look at compensation from all angles, recognizing that base salary isn't the only thing a company has control over when strategically adjusting compensation.
During the pandemic, an organization we were working with had undergone a significant reduction in force with our assistance. As the 'great resignation' unfolded, and a number of other conditions changed in the job market, the finance team recognized they were at risk because of expected and unexpected turnover. Simply put, if anyone else left the finance team, it would be more difficult for them to actually manage the Finance function and meet the goals and KPIs for their roles, department, and the company.
Given the economic uncertainty, there was overall reticence to increase anyone's base pay, especially because the company was attempting to be economically conservative. We were also concerned about the fact that compensating one department 'under stress' would lead to other VPs demanding the same adjustment for their team - because the perception was that every department was under stress since we had eliminated positions on their team.
That wasn't financially sustainable.
So, working directly with the CFO, we developed a retention bonus plan that would make a significant impact on his team, but also established certain metrics by which we would pay the bonus and what time period the individuals would need to remain with the organization to realize the full value of the bonus.
Whenever a company wants to 'throw more money' at people via base pay (which may not be sustainable long term), we often guide the discussion towards incentive compensation programs, because generally, you have greater control over the amount, when you need to pay it, and eligibility requirements.
Compensation Changes During Financial Crisis
During the 2008 financial crisis, our firm had to adjust compensation by reducing executive bonuses, freezing salary increases, and implementing flexible work arrangements to maintain financial stability. We communicated openly with employees, explaining the reasons behind these changes and committing to restore full compensation once the economy improved, which helped maintain trust and cohesion during a challenging time.
Performance-Based Bonuses in Recession
As the CEO of Startup House, I understand the importance of being flexible with compensation in response to unexpected economic events. One time, we had to adjust our compensation structure during a recession by offering more performance-based bonuses rather than fixed salaries. This not only motivated our team to work harder but also helped us navigate through the tough times without compromising the quality of our work. Remember, in times of uncertainty, adaptability is key to keeping your team motivated and your business afloat.
