Refreshing Your Compensation in 2021: 3 Trends to Consider
It’s that time of year again. The weather is getting colder, and many business leaders like you are taking the time to review the past 12 months and determine if any structural and internal changes need to be made.
With the broad shift to working from home, stricter budgets due to an unpredictable economy, and political and social issues brought to the forefront of the national conversation, the past year has been a turbulent one. How you engage and compensate your employees will be critical going forward, especially if you want to retain your team members and continue growing during this time.
Under these circumstances, I believe it’s more essential than ever to take a total rewards approach to employee compensation. Simply offering a high salary is not enough anymore; young employees and those just entering the workforce are increasingly prioritizing more indirect forms of compensation like work/life balance, useful benefits, and engaging cultures. Delivering these things in a remote or hybrid work environment can be a particular challenge.
To better ensure you’re doing all you can for your employees in the new year, we’ve identified a few trends that will likely affect your own compensation strategy in 2021.
1. The New US Political Administration
Even before the year started, everyone knew that 2020 was going to be eventful. After all: It was an election year in the US, and no matter who won, their policies would shape labor regulations and, consequently, how companies compensate their employees going forward.
Joe Biden scored the win over incumbent Donald Trump this year, so business leaders should try to anticipate how his views and policies might impact their employee compensation strategies. Here are a few important facts to note:
- He’ll likely expand, or at least maintain, coverage under the Affordable Care Act (ACA). That means the employer mandate requiring certain businesses to provide ACA-compliant healthcare to their full-time workers will likely remain in place.
- He has called for a guaranteed 12 weeks of paid family and medical leave and has expressed support for the FAMILY Act, which would extend financial benefits to employees who take time off for serious health conditions, births, adoptions, and other caregiving purposes.
- His tax plan would alter 401(k)s, specifically by replacing upfront, escalating tax breaks with flat-tax credits.
- He supports raising the federal minimum wage to $15 an hour by 2026.
When Biden is sworn into office, these proposals might become official policy. It’s important to keep these potential changes in mind as you plan your own employee compensation strategy for 2021. For example, if the ACA does expand, you may need to adjust your health benefits to meet new standards.
2. Increased Dependence on Technology and Automation
Our dependence on technology was already growing steadily, but when COVID-19 forced many businesses to adopt fully remote work, technology became even more important for how we live our lives and conduct our business.
Even your compensation efforts may go entirely digital in 2021, if they haven’t already. Talent management software can help you track your payroll expenditure estimates, accounting for overtime, temporary positions, new hires, and reductions. The right tech could help you take these compensation tasks digital in 2021:
- Ensuring pay grades reflect internal equity by comparing employee work against job descriptions.
- Determining merit-based pay increases based on more objective measures like financial reports and pay increase equations.
- Facilitating employee self-reviews to streamline performance management.
- Employee recognition through the rewarding of points, badges, and/or trophies to employees for accomplishing assigned tasks and activities.
The intersection of technology and compensation empowers leaders to organize employee compensation strategies based on real-time employee data. And, given that hiring is predicted to remain largely digital even once the pandemic subsides, it’s likely that compensation technology will remain crucial in a post-COVID world.
3. Emphasis on Balanced and Flexible Work Cultures
While positive work cultures have long been priorities for modern organizations, this year has made them more vital than ever. It’s much harder to foster workplace culture when everyone is remote, but that also makes doing so all the more important. Employees need work/life balance in our remote world — or else, they’re risking burnout.
Fun work celebrations like holiday parties and rewards for reaching a goal have had to move online, and I’m sure everyone agrees that a party over Zoom is not the same as one in person. But here are some trends we’re seeing as organizations attempt to build engaging work cultures in a newly remote environment:
- More flexibility when it comes to working remotely or in the office: Ninety-eight percent of employees want to have the option to work from home at least some of the time for the rest of their careers.
- Prioritization of diversity, equity, and inclusion (DE&I) when it comes to employee engagement, internal culture, hiring, and more: With social justice movements and the election throwing new light on these issues, employees are paying more attention to whether their organizations are living up to their own DE&I promises.
- Support for employee mental health and life outside of work: In late June, the Centers for Disease Control and Prevention found that 40 percent of US adults were struggling with mental health or substance abuse due to the pandemic. In response, companies may want to offer expanded healthcare packages that include mental health services.
- Increased social responsibility: Giving back is important, especially in times like this. According to Double the Donation, many businesses are actively expanding their matching-gift programs right now to allow their employees to direct support to the issues that matter most to them.
The above are some of the best ways you can indirectly compensate your employees, a major component of a total rewards approach. While salary and pay are important, these non-financial forms of compensation often make the difference in keeping employees truly engaged — especially in times of crises and instability.
If 2020 has taught us anything, it’s that we cannot predict everything that will happen. However, by keeping up with the relevant trends, you can best position your organization to respond effectively to whatever may be in store, including the latest compensation trends for 2021.
Jennifer C. Loftus is a founding partner of and national director for Astron Solutions.