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All eyes will be on Rishi Sunak ahead of the Budget this week, on Wednesday 3 March. Mr Sunak has said he will be honest about the scale of the challenge ahead and has given his firmest hint yet that the furlough scheme will be extended.

Here we outline the immediate trends that we have noted in relation to the pay and reward landscape in 2021.

1. Societal value of key workers

The pandemic has seen many frontline workers highlighted for the vital role they play in each aspect of our day to day lives. Many are speculating about pay levels for those, particularly in the NHS amidst concerns that their pay will stagnate. We speculated that employers could factor in societal value to the way that they review roles in light of the weekly ‘Clap for Carers’ in the first lockdown. Public shows of appreciation for the key workers who have kept us safe, well, educated and stocked up with food have underlined the pivotal role at a time of international uncertainty. It is now up to ministers to reflect this in pay levels.

Some employers have already recognised the service of their employees throughout the pandemic, such as Sainsbury’s who have issued a pay rise and recognition payment for its staff. The National Living Wage (NLW) raises further challenges for employers who need to keep pay integrity in their pay structures, as it creates upwards pay pressure and there needs to be clear differentiation between higher bands. Organisational design is a key consideration here, as each band should reflect greater reward for greater responsibility, so employers will have to factor this in when accommodating new NLW levels.

2. Regional pay scales

Working from home has affected buying decisions and had an effect on local economies. Whilst some have become unexpected savers, others have used what they have spent on petrol, lunch and train travel in the past to support more local businesses diversifying over lockdown. Geographical diversification is an international trend set to dominate the post-pandemic recruitment landscape.

With fewer costs for employees involved in working remotely, this may affect the premium paid to those in big cities. Some organisations are considering taking away London weighting. Over the first lockdown there was a boom in property searches outside cities. Lots of companies are already moving away from London weighting and consolidating this into their pay scales. Having a location in London or other major cities usually generates a pay premium, as employees will be expected to access the office putting them on the pricier commuter belt, but working digitally makes this more fluid. Spotify has said they will pay at San Francisco and New York salary rates based on the job type, regardless of the employee’s location. However, some companies such as Facebook and Twitter have said they will cut employee salaries for those relocating away. Employers considering changing their pay policy will have to think carefully about negotiating changes to the current terms and conditions for employees. Many will be looking to factor these changes in going forward.

3. Employee benefits

The savings that staff make annually without the commute and the impact on their quality of life have led to many companies reassessing their approach to the office. As many employees have been able to increase their monthly take-home without the cost of commute, and with productivity levels sustained over the last year, this has highlighted how working from home has been successful overall.

In our autumn UK Reward Management Survey, one in seven employers were looking to reduce their office space. Employers are taking a mixed approach to how working from home factors into the ‘new normal’ of the workplace beyond the pandemic. There are those who find it an “aberration…we’re going to correct as soon as possible”, described as such by Goldman Sachs’ boss David Solomon as he feels it does not suit their work culture. Training and mentorship for junior members will be an important dimension to how feasible many companies feel this way of working is for the future.

There are those using the opportunity to work from home as an important benefit offered to candidates. Spotify has championed employee trust by saying they will let employees work from anywhere they do their best ‘thinking and creating’. The music streaming and podcast company said that the re-evaluation of its office space is driven by a desire for ‘increased sustainability, flexibility and wellbeing’. The office space will be a place of collaboration. Facebook, Google and Amazon are also envisioning a ‘hybrid’ of working from home and providing a collaborative experience and attractive amenities for the days employees elect to come in. Whilst these companies’ approaches to pay may differ, the flexibility and ongoing remote working policy will be a huge draw from a wider talent pool, reflecting how this is forming a crucial aspect of some organisation’s employee value proposition (EVP). Some companies have made a cost saving and financially thrived through this difficult global period, whilst recognising that employees are not needed in an office five days a week. This suits particular sectors such as the third sector, which realises the cost savings to be made especially for those with London branches.

4. The search for a magic number

In terms of pay and how it operates in the overall reward strategy, is there no longer a correct rate of pay for a job? Is there a magic number that benchmarking divines for reward specialists? Whilst benchmarking helps companies to assess the bandwidth they may have in terms of budget for each role, the complete reward package should be considered holistically. We feel there’s no ‘one size fits all’ approach to reward. Benchmarking is one important element of the wider research organisations should factor in, to ensure that the pay and benefits being offered to top talent is competitive. Paying consolidated national rates for roles, offering flexibility and the track record of companies in terms of diversity and inclusion may also enable them to cast a wider net in their search for skills. Total Reward Statements are also an important tool for companies to underline the full mix of rewards they offer in times of constrained pay.

There is also the additional challenge of managing differences in pay practices following mergers and acquisitions. Whilst external benchmarking is crucial to satisfying the hurdle of competitive pay, there must also be internal parity of pay. Discrepancies can occur following high growth activity, as companies are bought and retain their ways of operating. Getting in place consistent pay structures and ensuring job roles recognise equivalent work throughout organisations is a very involved process. Fair pay in this context can bolster employee morale as there is a consistent approach throughout the organisation. Therefore, the search for a ‘magic number’ both internally and externally can produce a more stable and fulfilled workplace.

5. A mixed approach to bonuses

Many scrapped bonus payments in 2020 to save cash. It will be interesting to see what companies plan to do in 2021 if revenue is still shaky. That may mean no bonuses for people for two consecutive years – will there be a renewed focus on base pay? 56 per cent of respondents to our UK Reward Management Survey in 2020 had already made their final pay award decisions as we went into the first lockdown. Therefore, the average level of pay reviews was sustained around the two to three per cent. It will be interesting to see if this is consistent with the pay reviews awarded in 2021.

Some employers may be more likely to offer bonuses than consolidated pay increases. This is a bold move as it normally comes down to the cash position of an organisation. Lidl gave all frontline staff a £200 ‘thank you’ bonus and Morrisons have increased their bonus threefold in recognition of the huge efforts by colleagues. The Scottish parliament awarded nurses a £500 bonus as a 'thank you' for their efforts in tackling Covid-19 in November 2020 and Northern Ireland followed suit in January 2021. There is currently a petition running to replicate this for NHS and Social Care workers in England, but the last one in 2020 was rejected. The majority of House Builder organisations did not pay a bonus, operated a pay freeze and made redundancies. However, whilst performance levels are of course down, some are doing some readjusting in relation to financial targets over the past six months. This means they may be able to award bonuses in recognition of hard work during turbulent times, based on affordability and performing better than expected. This ensures employee morale is not overlooked and employers are being seen to treat people as fairly as they can in difficult circumstances.

Get in touch

From the design of an organisation’s overall reward strategy to the granular detail of job evaluations, let us help you put an effective framework in place to achieve fair pay throughout your organisation. We will assess your approach to pay for 2021 – call us today.

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