Compensation Trends in a COVID-19 Economy

When it comes to compensation during the COVID-19 pandemic, it’s not that clear cut. However, you should take a thoughtful approach to both short-term actions and your long-term philosophy. Pay is arguably the most powerful and foundational aspect of a total rewards package, and changes should not be taken lightly.

Here are the top compensation market trends over the past few months:

Pay Cuts

Many organizations that have been negatively impacted by COVID have instituted pay cuts in addition to (or in lieu of) staffing reductions such as layoffs and furloughs. These are often on a graduated scale, so those who make less receive a lesser pay cut. With our Midwest clients, we are seeing around 10-15% for exempt roles and 20-25% for executives. Hourly employees are typically taking a reduction in hours or furlough versus a pay cut. Pay cuts are less common in the biggest U.S. corporations and not surprisingly, the smallest companies who have received Paycheck Protection Program funds (at least during their 8-week PPP fund period).

Merit Increases

Merit or other base pay increases are being reconsidered, especially for mid-size companies (over 500 employees but fewer than 10,000 employees). The trends vary between the largest employers and mid-size/smaller employers.

  • For smaller/mid-size employers, 57% of organizations have already paid or still plan to pay out salary increases in 2020, according to a World at Work survey in early April. Nineteen percent said they are waiting to decide whether they will pay out salary increases, and 17% said they are cancelling.
  • For the biggest U.S. corporations, according to a Willis Towers Watson report, only 12% had reduced or delayed salary increases, and 8% had frozen salaries. Relatively few employers have cut salaries; however, nearly a quarter (22%) are planning or considering these actions in the future.


Organizations are often continuing to pay bonuses, particularly if it has already been “earned” in the case of commission or other formal incentive plans. World at Work reports that 67% of organizations have paid or still plan to pay out bonuses in 2020, with 16% still waiting to decide whether they will pay bonuses and 8% cancelling bonuses.

Retirement Plan Contributions

Retirement plan contributions are being delayed or suspended in many cases as a cost savings measure. With the exception of safe harbor plan contributions, cutting matching contributions is generally a relatively simple matter, as you may not need to amend the plan.  However, remember to adequately communicate the changes to plan participants.

For example, explain what reductions to employer contributions are being made, why they are necessary, and when full matching contributions may be reconsidered or resumed.

Creative Ways to Reward Employees

Given the reality of your organization’s financial picture, here are some creative ways to reward your employees:

  • Postpone merit increases — If there is a reasonable possibility of change, consider delaying a final decision on merit increases and reconsidering at a later date (and communicate the plan to your employees).
  • Performance incentives and bonuses — If your incentives are tied to hitting certain financial or sales targets and are “self-funding,” consider more frequent payouts (e.g., quarterly) to motivate your employees during this unique period. Additionally, it’s a good time to consider long-term incentives and equity awards.
  • Hazard pay — If a position requires employees to have special duties such as temperature screenings, consider a stipend or additional short-term pay to recognize their safety.
  • Repurpose transportation or commuting benefits for remote workers — Many are turning parking and similar benefits into funds to be used for wellness or home office furnishings. If possible, consider parking benefits to reduce on-site workers’ reliance on public transportation.
  • Special projects and mentor programs — Your employees’ experiences are driven by more than compensation and benefits. Providing high performers with special projects and mentoring relationships will show your trust and belief in their future and inspire greater commitment.

While there aren’t easy answers during this uncertain time, knowing the market and thinking creatively will build loyalty and trust in your leadership and organization.

Want to learn more? Check out a few of our compensation resources from our COVID-19 resource hub.

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