During the COVID-19 pandemic, only 64% of businesses gave base pay increases in 2020, which was down from 82% in 2019. As businesses deal with the lingering effects of the COVID-19 pandemic, surveys showed that employers were expecting to give small increases to fewer employees in 2021. But as the economy opens back up, worker expectations for wages and salaries are not what employers had hoped to offer—and with the tight labor market, employees have more power to demand higher wages than in past post-recession recoveries.
Employers and employees alike are facing several post-pandemic compensation challenges. A survey by Robert Half found that 57% of U.S. businesses suspended salary increases as a result of the pandemic. As a result, the average remote worker estimates losing nearly $10,000 in delayed or denied promotions. Throughout the pandemic, employers asked employees to take on extra projects and responsibilities which often required extra hours without pay. Now, over half of employees plan on getting a new job due to the scarcity of extra compensation and increased workplace stress.
How will these competing forces play out? In this article, we’ll examine the long-term financial impacts of the pandemic on compensation. We’ll look at why employers want to preserve their cash while employees are anxious to get back on track with financial goals. Find out more about how the pandemic affected the gender pay gap and worker expectations. Plus, learn practical considerations for employers when approaching pay increases in the post-pandemic market.
Employers cautious with pay increases due to pandemic
Based on recent surveys, 2021 employer salary budgets increased by 3% or less across all job levels. These raises are largely seen as a “stop-gap measure” to make up for pay freezes applied in 2020 so businesses have time to regroup as they plan for additional increases in 2022. According to SHRM, pay freezes were the most common pay-related response to the pandemic in 2020. If applied, freezes were most commonly distributed across the company, followed by freezing pay for executives and the most highly compensated employees.
According to the 2021 Pay Trends Report from Willis Towers Watson, nearly half of companies globally stopped the salary review cycle during the pandemic as they shifted the focus to preserving cash. The other half still performed salary reviews but instead reduced the amount of salary increases.
Workers struggle with financial losses but have negotiating power
In a recent Pew Research survey, about half of non-retired adults said that the long-term financial impacts of the COVID-19 pandemic will make it harder to achieve financial goals. Forty-four percent said it will take three years to get back to where they were a year ago and 10% don’t think their finances will ever recover.
Despite this bleak outlook, many businesses are experiencing a rise in resignations while at the same time struggling to fill job openings. The April 2021 BLS Job Openings and Labor Turnover Summary showed a 20 year high in quit rates. In particular, women are exiting the workforce at alarming rates (30% overall and 40% female managers).
Gender pay gap persists; fewer women returning to work
Lingering wage gaps between men and women have remained relatively stable for the last 15 years. In 2020, women earned about 84% of what men earned—meaning it would take an extra 42 days of work for women to earn what men are paid. Unfortunately, this is another area where the COVID-19 pandemic will make a lasting impact as about 1.8 million women left the workforce over the last year and a half. Despite recent gains toward economic recovery, many women still remain unemployed or have simply chosen not to return. Historically when women leave the workforce, it leads to interruptions in career path and has a negative impact on long-term earnings.
Practical ways for employers to address compensation issues
There’s no question that the COVID-19 pandemic has reshaped the way we work. Employers can’t operate with a business-as-usual mindset anymore—especially when it comes to attracting talent amid a labor shortage. Customer needs have changed as have the needs of your workforce. As more workers reassess where and how they want to work, employers may find it more difficult to find and retain the workers they need. Given the current labor shortage, many believe employers will ultimately have to pay higher wages. For example, paying competitive talent above the median of your pay band.
This new world will also require employers to be more proactive and flexible with compensation. For example, some employers are giving mid-year raises and bonuses, especially if pay was frozen in 2020. One article also recommends taking focused action for pay increases. For example, target compensation planning for three specific categories of jobs: 1) Difficult to fill/high turnover jobs; 2) Jobs critical to achieve business results and goals; 3) Jobs with market rate inflation. As your business approaches compensation planning, think about what goals you are trying to achieve – is it to retain critical roles? Resolve pay inequities? Keeping these thoughts in mind will help you realign compensation appropriately.
It’s also worth noting that attracting and retaining talent isn’t always just about compensation. In one study, 64% of full-time employees said they would choose a company with a less stressful environment over a 10% higher salary. If your compensation budget is limited, consider offering more flexibility and a great company culture to show employees the value of their contributions.
How remote work figures into compensation
Now that companies have seen that remote work works, some employers are changing how they recruit and compensate people. Be sure to read our blog Compensation Issues for the Remote Workforce to find out more about compensation trends and payroll tax implications for remote workers. Many analysts believe that it may be a better move to reduce pay for new hires based on location rather than making downward wage adjustments to current staff salaries.
If you want help and support for your 2022 compensation planning efforts, Asure can help. Asure provides software and expert HR services to help your business build a great team, support the people in your organization, and ensure compliance.