Variable vs fixed pay: Has the war intensified due to COVID-19?

If the burden of work has not reduced for employees and they haven’t been overcompensated for overachievements, it would be unfair to restructure their salaries, because of the pandemic

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COVID-19 has brought in a lot of changes in the way organisations are functioning today. One of the biggest paradigm shifts was the movement of the workforce to their homes. While these mass movements did result in a few initial hiccups, many have now announced a permanent work-from- home arrangement for the coming years. This has also given birth to conversations regarding salary restructuring. Many organisations are looking to increase the variable component in salaries, as a response to the COVID-19 crisis. Reports suggest it is being done to preserve cash for business requirements as the pandemic has caused a lot of disruptions. But what will be the right way to go about it, if at all?

Lakshmanan M, CHRO, L&T Technology Services points out that the IT industry has experimented with multiple things. Some 20 years ago, compensation was fixed, then 10 years ago vaiable pay was introduced, with 10 per cent at junior levels to 50 per cent at senior levels. A few years later, it was felt that the variable pay was high and the system of giving it quarterly emerged. Now, people are suggesting merging it with the salary. “It all depends on which stage of compensation history one is in. I think this question is applicable to small and medium companies. Larger companies or established companies have already started seeing growth comeback in terms of revenue. COVID-19 cannot be a reason behind more variable pay. Large companies are now giving increments and promotions,” Lakshmanan M points out.


Nihar Ranjan Ghosh

“Employees are now more stressed about doing a good job, because we haven’t changed any KPIs or KRAs due to COVID-19 or WFH. I find it weird that there should be a need to restructure compensation.”


Historically speaking, organisations have been looking towards performance pay, and COVID-19 has not had and will not have any bearings on it. S V Nathan, partner and chief talent officer, Deloitte India, feels there will, however, be two or three things which will be part of the whole agenda. “One will be to pay enough attention to wellness. That is going to be big. Next will be the insurance, which has become part of total rewards. What should we be doing to cover insurance? It is one thing that will come and bite people later. Many organisations have been considering offering a basket of wellness-related packages. All this is cost to company. One will have to make sure that one’s performance pay is crafted in the right way,” he explains.


Lalit Kar

The outsourced workforce will mostly be engaged in a lot of project-based work, which will be taken over by technology gradually.

 


 

Nathan is of the opinion that when things settle down, people are going to be looking at outcome or number of years. At the end of the year, when it is time to pay compensation, skills and values are what they are compensated for. These will play a significant part. “If one employee’s skillset is higher than the other and both have served the same tenure in an organisation, the former will be paid more. It will obviously create imbalances, but organisations will start to look at that. Companies have realised that the one thing people put a figure on is contribution,” Nathan opines.

Salary restructuring with more allotment to the variable component is supposed to help the organisations deal better with crises, and keep them from resorting to layoffs. However, performance and skills are the important factors in determining who gets how much.

Lalit Kar, Sr VP-HR, Reliance Retail, predicts a layered employee structure which will lead to a corresponding payment structure. “The core of permanent employees will be smaller, then there will be outsourced people — gig workers / freelancers— on expertise basis for a short time. The outsourced workforce will mostly be engaged in a lot of project-based work, which will be taken over by technology gradually. In the short term, technology may not be put to use because that’s a cost to the company.” As per Kar, outsourced workers will get a fixed pay but there will be no performance-linked pay depending on the contract. The freelancers will be on contract with a pay as discussed, but there will be an incentive structure attached to it. If one works more, one earns more. Now the core fellows, the permanent employees, will get higher rewards. It will be based on performance, and therefore, the incentives linked with the same will be higher.” He also thinks incentives will not be paid in annual appraisals, but as a quarterly sum.

Discussions have veered towards the fact that it is the outcome of a large workforce working from home now. This has led many organisations to think of ways to realign the salary structures in such a way that they are compensated for their performances.


SV Nathan

“If one employee’s skillset is higher than the other and both have served the same tenure in an organisation, the former will be paid more.”

 


Nihar Ranjan Ghosh, president, human resources, Emami, is strongly against such assessment of employees who are now working under more stress than before, due to the changed work setup. “While the place of work may change, the deliverables are not changing. Therefore, I don’t see any merit in the discussion at all. No one is working less while working from home. If anything, the changed way of working has only become more stressful for my employees. When we had organised and designed the workplaces, a lot of support was extended to the employees. Now, all that has been pulled away. They are now actually working in isolation, from home. They are more stressed about doing a good job, because we haven’t changed any KPIs or KRAs due to COVID-19 or WFH. I find it very weird that there should be a need to restructure compensation just because a large portion of the workforce is functioning from home.”


Lakshmanan MT

“It all depends on which stage of compensation history one is in. COVID-19 cannot be a reason behind more variable pay.”

 


Ghosh also finds this line of thought extremely unethical, because organisations that are giving up their workspaces are saving tons of money. If at all, the work-from-home employees should be paid extra for their increased efforts. “Restructuring salary because of the pandemic would be a very unethical thing to do. One can only restructure the salary that if one has lessened the work burden of the employees for the same reason, or incentivised them for overachievement. But when one is expecting the person to deliver 100 per cent even amidst such conditions, why is one even talking about restructuring at all. One should rather pay them extra from the admin costs that are being saved.”

The HR fraternity has a mixed approach to whether or not COVID-19-induced challenges should lead to salary restructuring in organisations. However, they do admit that a few things will undergo certain changes, and that should be for the benefit of the employees and the organisation.

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