June 2020

Compensation practices in times of crisis: Emergency measures and business recovery

The health, economic and financial crisis that began earlier this year has resulted in severe economic decline and stock market volatility. The Canadian and U.S. prime rates and oil prices are tumbling to all-time lows. The economic repercussions of the pandemic have been brutal. Just like in 2008-2009, this slowdown will surely have an impact on the compensation management practices of organizations.

In this time of crisis, the government and the Bank of Canada have adopted immediate measures to support the economy. Organizations quickly followed suit.

In a previous bulletin¹, we talked about the impact of the crisis on wage increases. Pursuant to that, this bulletin focuses on emergency measures in place to deal with this crisis and ensure business recovery.

Emergency measures adopted by companies
Since the crisis began

To ensure business continuity, companies quickly put emergency measures into place. Here are some of the most common practices we’ve seen thus far:²

  1. Telework, along with training and IT tools to ensure efficiency.
  2. Changes to business travel policies to limit non-essential travel and comply with government recommendations.
  3. Implementation of emergency/business continuity plans to mitigate the impact on operations and reduce risk exposure.
  4. Updates and reviews of HR policies, such as:
    • Mental health guides
    • Leave policies and benefits
    • Recognition practices to highlight extraordinary contributions
    • Analysis of potential repercussions on yearly performance evaluations and incentive plans

These various measures were quickly put into place to address the immediate challenges of the crisis. Additional measures may eventually be implemented to cope with the difficult economic situation, which may last for some time.

During the crisis

The current crisis seems to be leading down the path to an economic situation similar to that of 2008-2009, but at a much faster pace. At the time, several financial measures and HR practices had been adopted or revised in response to a situation that was causing similar challenges—but at a different scale—for many organizations. The current economic slowdown caused by the pandemic has had different repercussions on companies that can be divided into three distinct groups:

  1. Organizations strongly affected or affected for long periods
    (e.g., retailers, airlines, or the tourism sector)

    • These less fortunate companies are already seeking ways to cut down on non-essential expenses, increase productivity, and even outsource non-strategic activities. Some of them will try to reduce labour costs by reviewing priority hiring, laying off employees, limiting bonuses, temporarily reducing wages, or implementing a voluntary redundancy program.
    • Faced with meeting uncertain annual targets that are beyond the control and will of employees, organizations in a position to pay bonuses may opt for collective rather than individual performance metrics.
    • To ensure a certain cash flow, some organizations are trying to negotiate payment deadlines with their suppliers or sell off assets.
  2. Organizations little or less affected in the long term
    (e.g., the services sector (financial, insurance) or the construction industry)

    • Many of those organizations quickly implemented modified schedules once the pandemic hit and are considering making these temporary measures permanent once the lockdown is lifted. Employees have also been encouraged to take vacation time during a given timeframe.
    • However, some organizations opted to maintain working conditions and honour employment agreements to uphold employee engagement and “fill up on talent” ahead of an eventual economic recovery. Organizations eligible for government subsidies are more likely to have adopted such an approach.
  3. Organizations with capacity shortages
    (e.g., essential services such as the health equipment manufacturing sector, food sector or pharmacies)

    • Organizations with a drastic increase in the demand for their products and services are also facing significant—yet vastly different—challenges. They’ve had to scramble to quickly meet the demand and ensure consistent service by motivating employees, operating with a reduced staff, or even hiring more employees. Many measures and initiatives were adopted to encourage and recognize employees’ efforts. These include temporary wage increases, risk premiums, or replacing overtime with an incentive compensation program.
    • That said, variable compensation policies such as commissions for sales force representatives should consider the current context and distinguish between an increase in sales due to crisis operations and an increase due to employee performance. Such policies should come with maximum thresholds. Should such measures become permanent as a result of an extended crisis, any salary equity issues should be quickly addressed.

Regardless of the type of repercussions on organizations, maintaining the engagement of key personnel must remain a priority. Monetary and non-monetary levers—such as salary increases, bonuses, tailored career plans, access to training, frequent contacts with management, clear and transparent communications, stimulating responsibilities and projects that foster positive career prospects—can be used to drive employee engagement.

In another bulletin, Normandin Beaudry will address issues caused by the pandemic and resulting reflections.

Normandin Beaudry’s consultants will continue to closely monitor the compensation sector and will keep you informed of future developments. Feel free to contact us if you have any questions.

¹Previous bulletin: Salary increases in times of crisis
²Data collected among Normandin Beaudry clients in recent weeks. Link: https://www.normandin-beaudry.ca/en/covid-19-survey-results-as-of-march-17-2020/