COVID-19 has had a ‘once-in-a-generation’ impact on society, mental and physical healthcare, and businesses.

The initial firefighting stage when infection rates were rising incrementally saw employers move their workforce to an online, home-based world – whilst quickly trying to keep employees connected and engaged.

Once the ‘lockdown normal’ had been established, thoughts then turned to the impact of the pandemic on aspects of reward – and what this means for pay decisions.

Having just gone through lockdown 3.0 – and firefighting stage 2.0 – HR may now be thinking about the annual pay review process.

A key aspect of making the decisions of where to prioritise investment on pay is the role of market benchmarking. The pandemic has thrown up several questions:

• To what extent is the market moving – or even decreasing?
• Which functions are moving the most?
• How do we know benchmarking is reflecting real pay movements?
• Is the regional pay market changing?
• How do we use benchmarking results in the context of the current climate?

Before the pandemic, reward professionals were already beginning to manage expectations around benchmarking – defining what the purpose is, and what the outcomes do (and more importantly, don’t) mean.

The coronavirus pandemic has resulted in revenues and profits taking a hit for organisations around the world (with the effects of having recently left the EU still to be determined) – with a likely knock-on effect for pay budgets.

Here are our thoughts of how to make benchmarking work for you:

Be clear on the purpose

In these times, it is unrealistic to benchmark every role in the organisation on a regular basis in case the market has moved – and for anyone to expect the outcomes to result in justifiable adjustments to pay.

However, it is still important to benchmark roles facing recruitment and retention pressures to gain a reference, thus ensuring staff are not lost due to a lack of competitive pay data.

Being clear on the purpose of benchmarking (i.e. to gain objective evidence as a reference to assess competitiveness) is key to managing expectations in a COVID-19 world where everyone is likely foraging for ways to increase – or at least maintain – pay. A proactive approach on communications can help reduce the headaches many organisations can face from their benchmarking.

Ensure your data reflects the current world

Even before the coronavirus landed, the importance of up-to-date benchmarking was key.

Now more than ever, market rates may move quickly. There is now a realistic potential for rates to flatline or even decrease in the current climate, given that some organisations have asked employees to take pay cuts or have suspended pay increases. Therefore, it is important to establish whether benchmark matches reflect current market conditions to identify movements.

Another component to capture market data is to measure how the market has actually moved, with the most accurate method to compare same incumbent salary movements – as we do in all our salary surveys.

This will allow organisations to look past disgruntled noises being made by employees and managers, and gain a clear view of exactly how the market is changing for different areas of the business.

A change in regional pay?

There is a question of how valid regional pay differences are in the world we now live in.

Currently, employees in a number of different sectors and functions are working remotely – and will likely do so in future (although not in all areas of the economy). In these cases, where staff are based becomes more of a personal choice than an imperative to perform the job. Regional pay differences are therefore likely to come under scrutiny – particularly once the ‘new normal’ is established in terms of numbers of employees working remotely on a permanent basis.

House prices remain high in large city centres and other housing hotspots, but there could well be a medium to long-term migration of workers from centres into suburbs, and suburbs to rural areas as a result of remote working being at the forefront of the ‘new normal’. Indeed, the population in London is widely predicted to decline for the first time since 1988.

The question is: can you justify differences in regional pay? If this is on the basis of the financial impact on costs of living only, this may be more open to challenge moving forward. The key is having objective evidence either way – and benchmarking how approaches to managing regional pay are (or aren’t) changing will provide this.

Understand what role the market plays in pay decisions

How much emphasis are you willing to place on keeping up with the market compared to potentially distorting internal equity for your current employees performing similar roles? Would you be happy justifying such differences in pay? Which principles are your organisation currently focusing on – and what impact does this have on these questions?

Our research predicts greater focus on internal equity for organisations moving forward with even more scrutiny on justifying the validity of pay differences – particularly across levels of seniority.

If you are focusing on the internal equity picture, benchmarking exercises without careful thought may cause more problems than solutions unless you are clear about the instances that merit benchmarking, the purpose behind it and what you will likely do with the outcomes.

Robust foundations

Getting reliable, up-to-date data for areas where recruitment and retention pressures are being most keenly felt is the key to navigating through these choppy waters – mixed in with clear thinking about the purpose and outcomes of benchmarking exercises.

Drawing clear lines behind benchmarking and explaining the key messages to line managers and business partners means that employees and managers will not focus too heavily on market data – and the impact that pulling the benchmarking lever may have on pay.

We would love to share our tips and experience on managing these conversations.

Contact us if you would like to use us as a sounding board to test your ideas or if you would like to explore our approach to benchmarking.

Peter Fairchild, Senior Consultant at QCG - January 2021