Compensation Trends

The first year of the new decade has not been an easy one. COVID-19 has been by far a disruption on an unprecedented global scale. The virus, which appears to have originated in Wuhan, China in November 2019, has since spread to virtually every country in the world.

Many are now calling the global fiscal aftermath a hard reset of the global economy. Countries dependent on international tourism have been deprived of most of their income this year. The travel and hospitality industry is in freefall as hotels and airlines struggle to stay afloat. And these are only the directly impacted sectors. The real economic effects of COVID-19 spread to virtually every industry you could think of.

As such, it makes sense that people are rethinking their priorities. Our long summer has come to an end with a blindsiding jolt. The modern economic infrastructure has not seen a crisis of this scale since the Spanish Flu in the 1920s. What that means is, we have been entirely unprepared for a pandemic.

Health systems lack the capacity, healthcare costs and coverage is going up, and still the virus shows no sign of letting up. While there is hope for a vaccine, people will likely do their best to protect against such a situation in the future. That implies a fundamental shift in how businesses operate, including changing compensation trends.

Compensation Trends in Post-COVID-19 Business

Just a year ago, the American economy was healthy and growing sustainably. Many staffing agencies reported a job market favoring employees, as unemployment rates were at their lowest point in years, and skilled candidates weren’t as readily available. The COVID-19 pandemic, however, flipped the switch in just a few short months. Today, millions of American’s have either been furloughed or laid off, pushing up unemployment rates to Depression-era levels. At this time, the job market no longer favors employees but employers, as there are more potential candidates available at any given time.

This availability of experienced workers has obviously helped employers meet staffing gaps, as firms such as manufacturing staffing agencies now have access to a much larger pool of available talent. This has helped reduce the turnaround time to fill key staffing positions on short notice. But there is a much deeper meaning to this COVID-catalyzed transformation.

More potential candidates may be available for any position, but their collective compensation priorities have changed as well. This has given rise to a number of interesting compensation trends in the United States that employers should be aware of, including the following:

Let’s examine these more closely below.

States are Mandating Key Compensation Thresholds

As most employers are already aware, the federal government does not hold the right to set compensation guidelines exclusively. Federal guidelines will always be valid, but the state that your business operates in also has the right to set, adjust, or change key employment metrics, such as minimum wage, overtime pay, and maximum work hours during a week.

Like federal guidelines, state compensation legislation is also mandatory for businesses operating in the state to comply with. Several states actually impose minimum wage and overtime pay standards that are higher than the federal minimum. Regardless, all those involved in hiring, from in-house hiring managers to external solutions like IT staffing firms, need to comply with them.

In 2020, we can reasonably expect more states to legislate along these lines. As states look to ensure fair and equitable compensation for their workforces, employers should keep a close eye on state legislation in their area of business. The change will likely be unaffected by the recent election results and changes to the White House or the House of Representatives.

Pay-Equity Litigation May Become a Major Concern

In December 2019, the United States 2nd Circuit Court of Appeals decided a landmark ruling that may set off an employment compensation trend for which employers need to be prepared. The Court ruled that in the event of pay-equity litigation, plaintiff workers don’t need to clear any inflated legal standards. With the judgment forever changing pay-equity claims, it may be prudent for employers to expect more pay-equity litigation in the coming years.

By far, many businesses in the US now periodically assess potential gender pay gaps as well as analyze business-wide pay equity. Any shortfalls are usually addressed on priority, with most progressive businesses understanding the need for quick remediation. However, maintaining fair and equitable compensation policies, eliminating potential biases, and accounting for possible pay-equity litigation may be the smartest moves for businesses ahead.

More Businesses Opting to Pay Out Bonuses than Permanent Increments

Employee performance is usually one of the key indicators that determine the extent of compensation and rewards in an employer-employee relationship. The conventional approach calls for specified increments as a percentage of gross salary when employees meet productivity and efficiency milestones in their annual performance appraisal.

However, even with mediocre performers who resent going the extra mile, each increment represents a significant increase in the wages and salaries expenses for that year. For businesses with larger workforces, this can quickly escalate into an unsustainable compensation model, often resulting in layoffs even if an employee has been performing well.

Small businesses aren’t immune to mismanaging payroll expenses either. In fact, startups and other small/new entrepreneurial ventures need to budget very carefully or risk ending up with a workforce they can’t afford to pay. Maintaining a balance between rewarding employees and maintaining business sustainability are key concerns for employers and hiring managers.

In recent years, more businesses are subscribing to offering cash bonuses or even in-kind bonuses like an all-expenses-paid vacation, to top performers. In this model, performance still remains the key indicator. However, businesses can opt to reward the employee in one sustainable payment, instead of a permanent increase to payroll expenses for the duration of the year.

Pay Setting and Negotiation Is Becoming More Transparent

Business relationships such as that between an employer and an employee are built on mutual trust. Employees value transparency, especially when it comes to compensation offers or salary negotiations. As an employer, keeping your employer brand intact is core to long-term talent acquisition success. More transparency during the hiring and retention process implies a better perception of your employer brand in the candidate market.

This makes it easier for staffing partners such as an engineer staffing agency source and successfully deliver the specialty talent you need. And you can be sure workers and candidates have grapevines of their own. If you’re perceived as an employer with little to no transparency in terms of setting or negotiating wages, your employer brand will suffer as a result. In particularly bad cases, the blowback can be irreparable.

Employee Performance Will Continue to Drive Compensation and Rewards

COVID-19 has led to a lot of uncertainty. Businesses have to be very careful with managing expenses, including maintaining their current workforce as well as hiring new employees sustainably. In a time of shrinking profits and global uncertainty, employee performance still remains the most reliable indicator for determining fair compensation and rewards.

The idea is simple. Your best workers put in the most effort and get the most results. Ergo, they should get the best possible compensation under fair guidelines. Obviously, paying top performers the same compensation as your worst performers is very likely going to impact workforce morale and employee turnover. It will even remove the motivation to excel and go beyond defined targets.

Instead, openly rewarding your best performers is bound to encourage other workers to aspire to greater productivity, and hence be rewarded themselves. Valuing employee productivity as well as overall performance is a fair and transparent means to define compensation and rewards.

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