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Managing Compensation After COVID-19

This unprecedented time during the COVID-19 pandemic has turned HR processes on their head and companies are having to adjust quickly. In these extraordinary times, companies need to revisit compensation programs to prepare for the future. Reassessing job levels, reviewing spans of control, and planning for compensation review should be priorities to be fully equipped for the aftermath of COVID-19. 

1. Job Leveling: Jobs are not the same going forward

The pandemic forced companies to restructure operating models, revisit strategies, and in some cases, pivot their business in order to better position themselves for recovery. Teams have been combined, new lines of business have been established, and layoffs occurred – all resulting in role expectations  expanding.

Job leveling ensures that job structures align with business needs and expectations. It allows companies to establish expectations for promotions and clear career paths. The job leveling exercise can be broken down to a few simple steps. Definitions for each job level should incorporate level criteria (e.g., responsibility, organizational impact) and expectations of the job that managers can communicate to employees.

For many organizations, “lack of growth opportunity” is consistently the top reason why employees leave. Communicating career paths for your employees will improve engagement and retention. Categorizing each role into job levels also helps identify gaps in the workforce and establish consistent titles across the organization.

Lately, many companies have been blending responsibilities such as sales and customer success into one role, and this has a ripple effect to upper layers of management. That’s why it is particularly important to calibrate Director and above jobs to ensure there’s alignment and agreement regarding expectations of leaders across an organization.

With clear job levels and career paths, it will be easier to determine who should be promoted, and how to fairly compensate employees for their latest role and responsibilities. Leaders can then reevaluate existing positions and identify new roles needed that align with the company’s business strategies going forward.

2. Span of Control: Organizational structure has changed

Job leveling is to span of control as trees are to the forest. Span of control is the headcount reporting to a leader; it’s important to assess annually so you can calibrate managers’ scope and ensure responsibilities are being managed effectively. For optimal productivity and efficiency, each functional area’s span of control should also be reviewed after organizational restructuring and mergers or acquisitions.

A ratio of up to 1:10 (manager to employees) was typical in companies before COVID-19, but this ratio may broaden with time. Managers with direct reports who have very similar roles can have a wider span of control. However, less experienced managers should start out with fewer direct reports (a narrow span of control).

When reviewing spans of control within each department, look for trends and gaps. For example, CultivatePeople recently conducted a span of control study for an Insight Partners company. During the study, the results showed the Senior Manager and Senior Director job levels were underutilized. This gap resulted in the organization leaning heavily on the Manager and Director levels. The Senior Manager and Senior Director job levels should be leveraged as a career path progression and promotion opportunity. Many organizations skip these levels (e.g., promote someone from Manager straight to Director) and then find employees not meeting expectations of their new role.

When there are too many direct reports under managers, the potential for growing resentment from employees who aren’t being properly recognized and compensated for taking on more responsibilities is inevitable. Be proactive and regularly assess not only your organization’s span of control, but the appropriate compensation that should align with each leader’s scope and impact on the organization.

3. Compensation Review: Compensation Ranges Need Updating

As many companies increase their remote workforce due to COVID-19, they can open their talent search nationally, or even globally. Compensation structures will need to be revisited to incorporate new remote compensation strategies. Before COVID-19, many companies were paying large premiums to align with the geographic differential of major tech hubs. Now, when you can hire from anywhere, your market is no longer restricted to an expensive hub.

As companies start to look for more talent in the suburbs like Boulder and Austin, the result will likely be lower geographic differentials and cost of labor in cities like San Francisco and New York. The salaries offered in San Francisco may neutralize towards the U.S. national going rate. As a result, companies will leverage variable pay like bonuses and equity grant opportunities more. Leveraging incentive payouts aligned to significant contributions versus increases to base salaries limits recurring financial risk to the company. When cash budgets are tight, equity is a good retention tool to leverage for top performers (e.g., refresh or promotion grants).

Companies were already relocating more to suburban areas before COVID-19, and now, even more employees will move to towns with lower costs of living and labor. To realize savings from these shifts, companies need to ensure that their compensation strategies and structure are prepared for this new reality.

What now?

Reset and reimagine your compensation philosophy to align with the changing business. Reevaluate the org structure and ultimately employee compensation, to set your company up to accelerate as we move forward from the pandemic.

Compensation is the biggest expense and investment that companies undertake in support of their mission. As your company positions itself to recover from the pandemic, does your compensation strategy align with your new business strategy?