As we thankfully say goodbye to 2020, I wanted to look at what the most important factors in the Compensation process will be for 2021. There is no doubt that the past year has influenced the importance of different considerations in comp, and I thought it would be helpful to summarize what we see as the most significant things to focus on.
Despite, or perhaps because of all the chaos of this year, we are seeing an increase in variable pay components as part of the total rewards package. Organizations are using comprehensive compensation as a strategy for creating environments that reward employees and establish a strong ethos of employee engagement. This trend brings with it an increased demand for flexibility in compensation systems. It is not uncommon for companies today to have bonus plans with many plan designs, calculations, and components; We support one client who has 82 bonus plans with over eight components in each!
Another important trend is the increase in frequency that companies are accessing their compensation systems. Traditionally, there were a select few users utilizing their system 1x/2x per year – typically only during their comp cycles. Now, managers, finance personnel and general HR Business Practitioners are all increasingly utilizing their comp systems for strategic purposes – often resulting in year-round usage.
The top 4 trends to watch in compensation for 2021:
1. Agility – A central repository and a fluid process are going to be vital. Managing changes and last-minute updates and constantly re-running data through layers of manual process are not going to scale. If your program is complex and dynamic already 2021 will amplify that, and if it wasn’t complex before, assume it will be now. With the net effects of COVID still uncertain, it is vital that you approach your 2021 program with flexibility and an open mind. If this year has taught us anything, it is that we must be ready to quickly adapt and have tools that allow us to do so.
2. Security – This is a broken record, but are you handling sensitive data in a secure manner? With the considerable amount of security dangers that already exist, you need to make sure that you are mitigating every risk that can possibly be avoided. If you are still using spreadsheets and sending files and emails around with information that should be considered highly secure, you are taking a significant risk. Beyond intruder risk, you also need to be conscious of whether change controls are in place to document who did what and when. The need to have auditability is an absolute must have and the more you can centralize your compensation data in a single repository versus disparate systems and files, the better off you will be.
3. Predictive Analysis/Modeling: As systems get smarter and capture more information, leaders are looking to the compensation function to provide more than just basic analytics. In 2021, a comp professional needs to be analyzing data year-round and recommending course corrections. For example, if too many market adjustments are happening during the year, identify it early and put greater controls in place. But beyond just policing what managers and HR are doing, the comp team needs to predict what will happen in this uncertain market. Companies are looking to better understand how certain pieces of information like time in position, time with the company, position in range, identifying potential “at risk” employees, performance rating, potential rating, manager, recognition awards affect retention. The loss of talent is a #1 concern in this market and that information can make them more proactive in identifying potential problem areas as opposed to being reactive.
4. Pay Equity has been an important topic for a couple of years when it comes to predictive analysis and balancing internal equity with external competitions. In 2021, with the struggle to attract and retain top talent layered on top, the spotlight is greater on this area. For example, some companies are looking at ways they can analyze in more real time offers made to new hires to identify whether they’re seeing trends of women being offered starting salaries that are less than their male counterparts. Since in many cases, pay inequity stems from what people are offered when they walk in the door, this type of proactive approach will better enable companies to ensure their employees are being paid fairly, ultimately resulting in less turnover and the ability to attract top talent. Along these lines, transparency in earnings is also growing in importance, leading to a large increase in demand for additional reporting functionality and customized total reward statements per employee.
Nobody knows exactly what 2021 will bring our way and how long the “anomaly” will last. As a compensation professional, you have to be prepared for the unknown and the best way to do that is to focus on what you can control. Understand and have access to the information and controls that you need to manage through all the uncertainty. Protect information and your firm, attract, and retain the best people and stay prepared. This is the best recipe for tackling whatever 2021 brings our way.
This year more than ever, have a Happy & Healthy New Year!
If you think that you are lacking in any of these areas, or would like to hear more about how to be as prepared as possible, we’d be happy to consult with you about how Compose can help you reduce risk, improve data integrity, and help save you time & Money managing compensation processes.
