The varying impacts of 2020 and all the unknowns of 2021 make compensation planning more important than ever. As you seek to start 2021 strong, here are six ways to make sure your compensation plan is ready for whatever the new year throws at you.
2020's in the rearview window—and thank goodness. Employers struggled to keep businesses open and have been challenged to develop new markets, products and services in record time.
Most economists predict that the economy will continue to rebound throughout 2021 but at an uneven pace.
The varying impacts of 2020 and all the unknowns of 2021 make compensation planning more important than ever. As you seek to start 2021 strong, here are six ways to make sure your compensation plan is ready for whatever the new year throws at you:
1) Stay up to date on legislative changes. States and municipalities have enacted legislation that impacts compensation. This represents a unique challenge for employers doing business in multiple locations. The changes are too numerous to list, but some of the most significant include:
- 23 states have minimum wage increases scheduled for 2021
- 10 states have approved a $15.00 minimum wage
- 9 states now offer paid family and medical leave
At the federal level, President-elect Biden has vowed to take several actions to support workers. When and how these might be implemented has yet to be determined, but these include:
- End the tax cuts enacted in the Tax Cuts and Jobs Act of 2017
- Increase income taxes for high-income earners (above $400,000 annual income)
- Restore federal workers' rights to unionize
- Remove the Social Security Payroll Tax Deferral option
2) Review compensation-related policies and procedures. The legislative changes described above require that you review and update your minimum wage and paid family and medical leave policies to comply with state and local requirements.
Additionally, some of your other policies and procedures may be outdated. For example:
- 15 states have now legalized recreational marijuana. Your drug testing policies may require review or revision as a result.
- If you have written policies regarding remote work or flexible schedules, COVID-19 may have made them irrelevant or worse, inaccurate. Now is the time to review those as well.
3) Plan 2021 salary increases. Early projections for 2021 forecast base salary increases anywhere from 2.3%, according to the Economic Research Institute, to 2.9%, according to World at Work. These forecasts were made in the fall of 2020 and consider the volatility of 2020 and the uncertainty of 2021.
Consider these forecasts along with your organization's unique issues related to affordability, external competitiveness, and internal equity as you plan 2021 salary increases.
4) Plan 2021 bonuses and incentives. The high-risk business environment and uncertainty expected in 2021 may require changes to planning incentives.
Setting lower goals or changing the mix of performance measures are probably the first steps to consider. Doing this, however, requires consideration of the total cost of the incentive plans relative to adjusted goals and metrics.
Similarly, organizations with longer-term incentive plans and goals (such as 3-year plans) should consider changing to shorter-term plans since long-term goal setting in times of serious economic uncertainty becomes virtually impossible.
5) Understand your competitive markets and how they have changed. If you've historically hired a lot of entry-level employees, you may think that hiring them in 2021 will be easier because so many are unemployed.
But think again. You may have different competitors. Grocery chains are recruiting record numbers of employees, as are other large retailers like Amazon, Target and Walmart. And they're pretty much all paying $15 an hour, whether it's legally required or not.
If you hire specialized tech employees, expect the market for skilled personnel to remain as tight as ever. And expect a lot of these new hires to request flexible schedules or the ability to work from home.
6) Develop a comprehensive employee communication strategy. Employee communications have been particularly challenging this year, often including discussions about furloughs, layoffs, termination and deferred or canceled salary increases.
Add in the difficulties of communicating with employees working at home, and the challenges become overwhelming.
It's critical to develop your new year employee communications now. The key components of your communication strategy should be:
- Legislative changes and how they will impact policies, procedures and employee paychecks.
- 2021 planned changes to base salaries, incentive plans, and related compensation policies and procedures.
Paige McAllister is vice president, HR compliance, Affinity HR Group, Inc. Affinity HR is the endorsed HR partner of Big “I" Hires, the Independent Insurance Agents of Virginia, Big I New York, and Big I New Jersey.
Reach out to Affinity HR Group via email or 877-660-6400 with your compensation questions or other HR needs.