There is no hiding from the fact that the coronavirus pandemic is impacting many aspects of work and our personal lives. With organisations focused on plans to weather this storm, we at QCG would like to offer some ideas on ways to manage risks related to pay that are becoming more pressing as a result of the pandemic. Beyond the income support offered by the government to different groups of employees and self-employed individuals, organisations will need to think about what they need to do with pay to manage the impact on business of COVID-19. At the heart of it all is the question of how to balance support for employees with affordability, uncertainty and business continuity – or even survival. To begin with, we believe decisions should consider the following principles:

• Protection of the most vulnerable: Employees on lower levels of income, those with no savings or supplementary income available, or individuals whose livelihood would be compromised by any changes to pay should be prioritised for protection by excluding them from negative changes to pay or at least reducing the scale of these changes.
• Context: Any changes being considered or implemented should be preceded by honest, relevant and timely communications about the reasons underpinning these actions and what the organisation expects to achieve by implementing them. This will help with making difficult messages land in a better way and reducing the risk of employees considering such actions as something arbitrary or unsubstantiated.
• Timing: Providing clarity around timescales and/or milestones to re-evaluate current assumptions will provide a degree of certainty. Otherwise there is a risk of having a potential negative impact on engagement from speculation about the duration or the permanent nature of changes.

In terms of specific actions that organisations may take during this difficult time, we have identified the following options:

Changes to salaries

Organisations looking to be prudent with their spend should business performance take a turn for the worse, can consider postponing or moderating salary increases as a first option. Voluntary pay reductions, requiring an “opt-in” from employees, can help further. In this context it is important to provide reassurance by indicating that these are precautionary measures up for review as and when there is a clearer market outlook.

For organisations already facing adverse trading conditions and a material impact on their finances there may be a need for stronger measures. Suspending salary increases and implementing salary reductions, with an “opt-out” option for employees who cannot afford one, are likely to provide a measure of financial relief.

In addition, organisations should be clear in terms of any plans to top up government support in situations in which a suspension of work, and the subsequent use of these schemes, are unavoidable. If possible, organisations should consider positioning reductions in salary as “deferrals” rather than “pay cuts”.

This would involve holding pay back for a defined period of time, e.g. 6 months or 1 year, and the releasing it – or withholding it if the situation has not improved.

Incentive awards

Suspending the payment of bonuses and other incentives can be seen as an easy win to reduce risk in this environment.

Whilst true, it is important to keep a number of factors in mind if going down this road. The discretionary nature of most incentive plans does not take away from the fact that many employees will see their bonuses and other financial incentives as a standard part of their remuneration package, especially when awards have taken place regularly in previous years.

Therefore any suspension of incentive awards could be regarded as a pay cut, even if suspending awards is within the rules of that particular incentive plan. This emphasises the importance of providing the right context for these measures.

Also, just as we advise with reductions in salary, a mitigating factor can be to position suspensions of awards as “deferrals” with future payments conditioned on the achievement of clear financial objectives over a defined period of time.

Financial wellbeing

We have been encouraged by the increased focus on general employee wellbeing to help people be in the best possible position to endure the adversity we are facing. From a financial wellbeing point of view, there are interventions that can help ease financial pressure on employees and consequently reduce the risk of adding to what already is a stressful situation.

Providing favourable credit facilities will prove very valuable for employees who are not in a position to fund any significant unexpected expenditure.

Boilers can still break, bathrooms can still flood, and if you don’t have the means to cover the costs of repairs this will be stressful and clearly get in the way of your work (especially if you are working from home!).

Extending interest-free loans, providing access to emergency funds and/or payroll advances can all help. Beyond the immediate access to cash, educating employees on managing their finances during this period of uncertainty and making information available about the help that they can receive will provide further reassurance. These are difficult times for all of us.

We are available to talk if you would like to use us as a sounding board to test your ideas or if you would like a hand with developing plans to manage emerging pay risks. Contact us if you need help.

Juan Novoa, Lead Consultant at QCG – March 2020