COVID-19 Era Compensation Planning

 |  Business Management, COVID-19

As businesses move forward operating in new ways in the midst of COVID-19, many are rethinking how their employees are Covid-19 compensationcompensated. In the pre-COVID world, compensation fell into two main categories: direct compensation (salary, hourly, commission and bonuses) and indirect compensation (benefits). In the new world, businesses need to rethink their compensation packages.
Rethinking Compensation
At the height of COVID-19, businesses had to deal with the immediacy of the situation. Many tried to retain staff and keep things as they were before COVID-19. As things progressed and businesses began to recognize the long-term effects on their bottom line, they had to weigh the trade-offs between salary cuts, furloughs, and layoffs against the reality of reduced cash flow and increased technology costs. The unemployment rate illustrates the result for many employers, particularly those in industries like travel and entertainment, restaurants and retail.
Through whatever combination of luck and circumstance, many other businesses found an opportunity in these times of adversity. Among other advantages, some of these businesses had the financial wherewithal to hire top talent and pay top compensation from the large talent pool that was suddenly available to them.
Hiring and Retaining Talent
Hiring top talent is more complicated for companies that must balance current cash flow and cash flow projections before they can design a competitive COVID-19 compensation package for their existing employees and new hires.  How, for example, should salespeople be compensated who are used to a compensation structure that provides a significant portion of their income through commission? What trade-offs do you have to make to hire the talent that will allow your business to succeed?
Consider the following options for a new compensation package:
Pay cuts: Companies across the board are asking company leaders and employees to take a permanent or temporary pay cut, including bonuses. According to a Gallagher study of 151 U.S.-listed public companies, the median compensation reduction to at least the CEO’s salary was 50 percent. If compensation was cut for other executives, those cuts usually were lower.
In addition, 16 percent of companies reported a reduction for salaried employees, ranging from 15 percent to 50 percent. The median reduction was 20 percent. In many instances, the cut was greater for higher-salaried employees.
In some instances, these cuts were characterized as deferrals, meaning the deferred amounts would be repaid in the future.
Commission:  Retaining top salespeople can be challenging for businesses that are struggling to make payroll and maintain operations. Companies in these situations are responding to the economic impact COVID-19 has had on its market segment. They are not things the company or salesperson has direct control over. Keep in mind that replacing high performers is expensive and the company’s goal should be restructuring the person’s compensation package.
Companies can restructure pay for these employees by including more compensation in salary and less in commission or by deferring bonuses, compensation, and salary.
The financial and economic impact of COVID-19 continues to evolve. The best option for a business planning compensation may be to plan for the short term and keep an eye on the longer term. Consult with experts before making any final decisions to ensure you are in compliance with laws and other requirements. The last thing any company needs is a near-term fix that causes long-term problems.
Call us today for advice on creative ways to restructure your compensation packages.

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