Compensation & Benefits
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No one in the human resource management field would underestimate the impact COVID-19 has had on the current workforce market. The pandemic revealed the problems the world economy has been struggling with for a while. In addition, the precarious political and economic situation in the world, exacerbated by Russia’s shocking invasion of Ukraine makes us realize how fragile is the environment we live in, and how quickly and irretrievably it can be changed.
That instability, in turn, affects the whole economy and the workforce market in particular. The shortage of highly-skilled specialists coupled with massive numbers of workers whose abilities will soon become obsolete come to the fore as the most pressing current issues. In addition, the compensation managers have been forced to at the same time balance management costs and protect employees by developing agile and transparent compensation strategies in order to keep their businesses afloat.
As a result, we can identify a couple of hr trends for 2022, several of which like pay equity, pay transparency or variable pay were already on the rise, and their adoption has only been accelerated by recent events. Others, such as remote work or mental health support emerged alongside. Nevertheless, each will help you improve employee satisfaction and retention.
Here, I will show you how to take advantage of those 10 HR trends, so that you can adopt a compensation strategy that will assure your company’s success in this evolving and complex business environment.
Working remotely entered into the picture of key hr trends at the time of pandemic. Research conducted both before and after COVID-19 shows that, on the whole, employees became more productive when working from home rather than from the office. That’s not to say that fully remote working is for everyone. Every employee has different needs and priorities, but at least for some groups home office is a desired and expected option.
In fact, 42% of current remote workers claimed that if their present company doesn’t continue to offer working from home long-term, they will switch to a company that does, causing high employee turnover.
And there is no shortage of hr leaders adopting such policies. For example, Quora, Shopify, Upwork, and Basecamphave already made decisions to transition to a 100% remote work model while Spotify, Slack, and Hubspot chose a hybrid mode with remote working being a major part of how they will operate in the foreseeable future. In fact, in the next three years, as many as 61% of companies could make the home office a permanent policy, according to Willis Towers Watson’s Flexible Work and Rewards Survey.*
What are the benefits of remote work? It turns out that employees most frequently cite saving money, no wasted time commuting (and this is the most hated activity of the worker), and more time spent with the family.
Therefore, offering the remote work option may be critical for your company to improve employee retention and keep highly-skilled workers from being snatched by the competition in the current market.
Especially, letting your employees go remote may come with some actual perks to your business. These include reduction in real estate and transportation costs as well as alleviating the shortage of skilled labor by tapping into the pool of otherwise unavailable talent all-over the world.
The fact that most people choosing to work remotely leave high-cost-of-living areas for more affordable options also opens up a question of location-based compensation, as the cost of living is no longer the same across the entire workforce. Giant companies such as Facebook have already long adopted the policies of pay cuts if their employees choose to work remotely from cheaper locations.
However, think twice before endorsing such policies as highly skilled workers aware of the value of their abilities strongly believe that people doing the same jobs and providing the same performance levels should be paid the same. And many companies are aware of that as well, as 41% of organizations decided to keep the pay the same for both remote and onsite work based on 2022 Compensation Best Practices Report, and 21% chose to transition to location-based pricing. Whether this becomes a more prevalent practice in 2022 remains to be seen.
Although remote work may come with many advantages, it’s not all that great. Quite a number of hr leaders and employees alike, actually list a number of challenges it presents.
First of all, not everyone has proper conditions at home to work 100% remotely. In addition, the onsite workers take advantage of better leadership, stronger support, access, and connections to team members, while those working from home struggle with isolation and lack of socialization, work-life balance, and employee burnout.
In this respect, the hybrid option offering a mix of on- and offsite working options may be an attractive solution for both companies and their employees. Especially so, as 63% of knowledge workers prefer a hybrid model compared to only 20% opting for fully remote and 17% choosing 100% onsite.
As a result, most companies choose a hybrid workplace where large numbers of workers rotate in and out of the offices configured for shared spaces. The hybrid model still allows companies to keep employee satisfaction high, while also harnessing the financial benefits of smaller office space compared to the area required if working onsite was mandatory for everyone.
If you are wary of introducing 100% remote work at your company, consider playing around with a variety of hybrid options by adjusting the number of days on- and offsite to see what works best for your business.
This has been among HR trends in compensation management for a few years now and has gained even greater momentum as a result of the pandemic. The flexible schedule is here to stay.
Although employees have long wanted to control their working hours, that hasn’t been something seriously considered by the organizations. Now, after more than a year of remote work, working 9 to 5 from Monday to Friday is not something all employees want to return to.
In fact, already a 2019 surveyshowed that 80% of workers claimed that they would be more loyal to their company if it offered flexible work options, and 25% said that they would be even willing to accept a 10 to 20% pay cut for more flexibility.
As it turns out, many employers currently embrace these hr trends, letting their workforce choose the schedule that is most productive for them as long as they keep their performance on par and get the job done. Some, such as Unilever of New Zealand, also started to experiment with the length of the workweek and working hours, by offering their employees a compressed 4-day week while compensating them for five.
In this way, many modern businesses promote work-life balance while boosting productivity and worker engagement leading to higher employee satisfaction ratings and higher retention.
And there are myriads of options in employee assistance programs to choose from, starting with varied arrival and departure times (log-on and log-off for remote), more PTOs, ability to choose shifts, sabbatical or longer unpaid time off without losing seniority, guaranteed caregiver leaves to name just a few.
In recent years, digital transformation and automation happened at such a pace that companies have been constantly challenged to keep up with and adopt new technologies that would give them an edge over their competitors and bring in higher returns. COVID-19 induced economic shutdown only even more so exposed how many businesses are ill-equipped or lack the knowledge to carry out this transformation.
If your company is to avoid the fate of one of those, your hr professionals must attract and retain high-skilled workers. Especially so, as by 2022 54% of the workforce will require significant reskilling and upskilling according to the Future of Jobs Report of 2018 from the World Economic Forum. The 2020 edition of the survey projects the percentage of tasks taken over from humans by the machines:
The projected rise of repetitive tasks automation between 2020 and 2025 varies from 10% to 15% depending on the area. That increase is significant and implies that the adoption will happen across all sectors and company sizes. If you are not familiar with Robotic Process Automation (RPA) yet, I encourage you to read our blog post on RPA labor cost reduction.
Hence in the current climate, employers will need to consider skill-based pay that rewards a specific set of skills and their level. Case by case compensation consideration will be necessary to hold on to the critical talent instrumental to the achievement of future business strategies.
Additionally, other HR trends include keeping the employees’ skill sets updated. HR professionals should encourage skill development by offering various bonuses and differential compensation structures. And if you want to make sure your talent remains competitive in this fast-changing environment you will need to provide plenty of enhanced learning and development opportunities which in themselves are a form of reward to your workforce.
Another current HR trend links pay with employee’s performance and company’s success instead of offering annual increases of the fixed salary across the board. This is called variable pay or pay for performance.
In this model, employers reward employees on a more frequent basis by offering a combination of:
The higher frequency of the former afford prompt recognition of progress towards a goal expressed as an annual target, while the latter tend to be bestowed upon the project’s completion and provide an immediate reward to the entire team. Moreover, you don’t need to pay them in cash as the forms of gift cards, vacation vouchers, or additional paid time off are equally appreciated.
However, the variable pay model is not for everyone. Typically the compensation percentage based on performance varies widely by job level and occupation, with executives, top managers, and sales employees’ total cash compensation comprising the largest chunk in form of variable pay.
It’s also a good policy for hr professionals to create larger compensation distinctions for top performers and still provide an equal impetus to distinguish those of mid-range.
In order to determine the results each employee has achieved, the human resources have to carry out a performance review that is based on the pre-set goals and objectives usually in the form of a combination of individual, organizational, and team targets. These objectives have to be established earlier and need to be clearly communicated to the workers by the hr leaders. In fact, according to Payscale’s 2022 Compensation Best Practices Report, performance rewards are becoming increasingly popular.
Variable compensation is a great tool for hr teams to incentivize motivation and engagement from employees in all roles and job levels, from the shop floor through leadership. And it also helps companies efficiently manage their long-term fixed costs as well as goals.
The onset of the pandemic in 2020 resulted in an economic crisis leading to widespread job loss and job uncertainty heightened many employees' sense of fairness and transparency when it comes to the compensation and benefits policies. HR departments struggled to explain temporary adjustments such as salary freezes and reductions. These issues are still relevant and felt just as acutely in 2022 and this is one of the hr trends that will continue into the coming years.
Companies that don’t provide clear and transparent pay policies are at a distinctive disadvantage since workers’ demand for transparency is rising. The pressure comes from the bottom as nowadays employees tend to more frequently share their salary and bonus information with their coworkers. The honest pay conversation between the managers, hr professionals, and staff will help you mitigate distrust and doubts about compensation fairness, even in the cases where the employee may not necessarily like the answer.
This is why it’s crucial that your HR department designs and implements strategies to create transparent and equitable pay programs with clearly structured and articulated principles and objectives behind them. These should include the information on how the workers’ compensation is determined, what are the objective performance metrics, what is the bonus structure, and who is eligible.
Increasingly, human resources are also more willing to share detailed salary information with employees and prospects, including pay structure, salary grade or band range, and how this position’s compensation compares to the competitors in the broad external market as well as internally. Introducing transparent compensation policies will help your managers and hr professionals communicate effectively with the employees, who in turn will be more willing to accept them.
The workers appreciate and respect solid processes and these, in turn, provide an opportunity to better communicate the linkage between the business performance and individual contribution to the bottom line, fostering an atmosphere of fairness, understanding, and mutual trust
One of the most important recent hr trends is inevitably, pay equity. Pay equity is the concept of equal compensation for work of equal or comparable value in the context of gender and the racial pay gap.
With increasing numbers of women and people of color joining the labor force, especially in high-demand and critical skills areas, it’s crucial for companies to evaluate their compensation plans with regards to potential biases in their pay programs across the workforce performing similar tasks.
If you want to attract and retain top talent, you have to audit and analyze your pay structure with respect to whether any pay gaps or compensation patterns based on gender, race, and age exist. In fact, 66% of companies are either planning or currently performing such a review.
The push for pay equity comes also from governments that increasingly introduce laws against pay discrimination. As of 2021, a number of US states have already passed policies banning employers of all sizes from asking prospective candidates about their past salaries.
In today’s market, companies that want to stay competitive and promote their culture must prioritize pay equity research and perform it in accordance with rigorous methodologies. Failure to do so may result in a legal challenge, increasingly growing in numbers, that may seriously tarnish the reputation of your company.
More importantly, putting aside the legal compliance issues, perceptions of pay inequity erode employee engagement and trust. In order to attract workers and keep them satisfied it’s best to make sure your company’s hiring practices rely on market data and candidates’ qualifications when setting compensation.
Already before the COVID-19 has redefined every aspect of our lives, the untreated mental health issues of employees across the world resulted in lost productivity. Pandemic has only exacerbated those problems, and the unexpectedly long lockdowns forced people into isolation.
In addition, remote work in mal-adjusted home offices full of family members made mental health issues even more widespread, especially among the younger generations. What’s truly worrisome, is that the trend of declining stress levels associated with aging no longer seems to apply to the Millenials, whose lives are characterized by larger ambiguity and uncertainty compared to those of the past generations.
How to improve employee wellbeing?
Fortunately, there are multiple ways in which organizations may act to counter these problems and raise the employee satisfaction levels, especially so, as modern companies play an important role in combating the stigma around mental health. As each person’s mental health journey is unique, one way for human resource management departments is to offer flexible support in form of:
flexible health and wellness allowances where employees may choose activities that will foster their mental health best, for example, therapy sessions, gym memberships, meditation classes, a massage, self-help books, sports passes, etc.
Optional sessions or team workshops for employees held by professional staff such as therapists, coaches, and mental wellness experts
“No meeting days,” where on a weekly basis no meetings are taking place so that everyone can focus on their work without having to log into a meeting
Team or company events that will help your employees develop strong bonds with their coworkers
In 2021 employers finally started to recognize the toll the global health event has taken on their workforce. Voicing the importance of addressing mental health problems in non-judgmental ways and promoting mental hygiene at your company may be one of the easiest and most rewarding compensation management policies you can introduce. It’s surely an excellent way to keep your workers happy and healthy in this ever-changing and atomized environment.
As we enter 2022 the problems such as climate change, environmental degradation, unequal distribution of goods, overconsumption, or unethical work practices have been finally accepted as important topics in the mainstream debate of the business world. Together with the ‘black swans’ of the economic and social world in form of the pandemic, global instability, and most recently the current war in Ukraine make us realize how fragile is the environment we live in, and how quickly and irretrievably it can be changed.
In response to that many individuals want to make a change, even so small, that as a group effort can have a meaningful impact. Since most of us spend the larger portions of our lives at work, having a higher purpose and a company that shares our values is becoming increasingly important to contemporary employees. This is particularly true for the millennials and younger generations and the push for clear-cut and radical Corporate Social Responsibility (CSR) practices grows to become one of the most relevant hr trends this year.
In a nutshell, CSR is a concept that companies should self-regulate and do the ‘right-thing’ in spite of what may be the most rational choice based solely on economic principles. In this way, they become socially accountable to their employees, customers, shareholders, and the world at large. Developing a relevant CSR philosophy will not only help you form a unified and cohesive vision for your firm but also make an actual impact in your local sphere of influence.
There are three main areas in which you can practice CSR, although recently they also have been increasingly intertwined:
Environmentally friendly-oriented companies may choose to focus on reducing greenhouse gas emissions, pollution, and waste. Net-zero policy advocating that the amount of greenhouse gas produced to be smaller than the amount removed from the atmosphere is such an example. Recently Microsoft announced to be carbon negative by 2030 and to additionally remove the equivalent of its historical emissions since the inception of the company in 1975 by 2050.
Others may choose to work with suppliers that use alternative energy sources, produce sustainable materials, or focus on company-wide recycling programs. For example, Alexandra K, a firm producing bags and accessories uses only vegan innovative textiles made from grape-, corn-, or pineapple leather.
The socio-economic type of CSR may also take a couple of different approaches, but the main idea is to prioritize doing good, not just making money. In this way, a company may introduce fair-business practices across the board, such as setting a higher minimum wage, longer paid time off or hiring in traditionally underrepresented groups. Such an approach has been recently taken by Target which pledged to spend more than $2 billion with Black-owned businesses by 2025, including ordering products, hiring marketing agencies, construction companies, and facility maintenance from Black-owned businesses.
Open innovation, a concept where through competition a company may crowdsource solutions to solve a specific challenge, has recently been embraced by an increasing number of firms. This allows the organizations to offer unique and innovative solutions that fit the specific context and fund the brightest ideas to scale and support the programs, connecting with regional and local NGOs, small-scale enterprises, and start-ups. For example, PepsiCo uses open innovation to co-create solutions within the South-African food system, focusing on supporting emerging black farmers and business owners, promoting regenerative agricultural practices, encouraging innovation to revitalize the local agricultural sector.
Activities ranging from supporting local donation drives to donating a certain percentage of the company’s profit fulfill the philanthropic responsibility. And giving back is nowadays pretty much expected of any forward-thinking business.
Each company can start on a small scale, working with neighborhood communities through volunteering or fundraising for a local cause with which your employees can identify. In this way, you not only positively impact the local environment but also provide a strong team-building foundation. Unifying your workers around a noble cause with which they can identify fosters overall employee satisfaction and long-term retention.
Here at GGS, we participate in a cyclical and local Blood Drive Run co-organized by the Polish Red Cross promoting the idea of blood donation. Similarly, you can also step up for a one-time event. For example, with the onset of the pandemic, GGS donated part of its profits to a charity purchasing respirators. If you are looking for ideas, reach out to your employees to see what they are passionate about.
When you commit to CSR practices in a well-thought-out and honest way, you not only build your unique brand identity but also boost customer trust and public respect. Most importantly, the more companies follow suit, we will all benefit from the snowball effect, with each organization having an actual positive impact on the surrounding world.
For the past 25 years, we have witnessed a steady transition from short-term incentives and bonuses to long-term incentive plans as the largest component of the compensation packages at the executive level.
Recently, however, the companies have begun to expand the lists of their LTI recipients, which are no longer limited to the C-suite. Granting LTIPs popularity and their positive effects on the overall value of the company, it’s not a question of whether to grant an LTI, but to whom and to what degree.
Long-Term Incentives are a form of variable pay structure that rewards employees for reaching specific performance goals over a specific period of time, resulting in the company’s increased value and maximizing shareholders’ returns. Both private companies and publicly traded firms implement LTIPs based on the employees’ performance in addition to fixed income. The LTI component of the compensation is earned in the present and the payment is deferred, usually for 3-5 years, and afterwards spread over a course of time.
In order to attract and retain top talent, organizations disburse long-term incentives in form of shares, stock, or cash, to employees whose performance is crucial to the future of the company. These have traditionally been limited to the executives, but nowadays the increasing number of forward-thinking firms grant their equity to larger populations in order to promote the culture of ownership, attract the top performers and keep them motivated.
Practices vary widely across organizations on granting LTI as part of the package, and it’s possibly one of the most company-specific questions one can ask. Much depends on the culture and the mentality your firm is trying to build. Distributing LTIs in form of shares or stocks to all levels of employees will result in diluting the ownership and not necessarily encourage better performance, as many lower-ranking employees are not interested in being personally invested in the company but rather value a higher salary today.
Typically you should grant the award to the key figures who would want to act like owners and appreciate potential future equity above instant gratification in form of short-term cash bonuses. This includes high-performing and high-potential employees who could be susceptible to poaching by the competition.
In general, when considering your target LTI recipients, you should ask the following questions:
If you’d like to learn about LTIs in greater detail, be sure to check out our free LTIPs e-book.
Although salary has traditionally been the sole driving factor of employee retention and attraction, current HR trends make it clear that a company's ability to minimize turnover while keeping employee satisfaction levels high depends to a large extent on other benefits. Setting the right compensation management strategy then comes down to understanding and listening to what employees really need and expect in the current unpredictable environment.
Flexible and hybrid schedules, remote work, transparency, equity of pay, and Corporate Social Responsibility together with the personal development of critical skills and mental health well-being are hr trends that your company should consider to stay competitive in 2022.