A New Normal for Pay (i4cp login required)

Productivity

Return-to-normal is a popular topic of conversation these
days.

Business leaders are focused on return to work plans that
will hopefully reengage their workforces in more productive ways. Small
business owners are struggling to reopen, serve customers, and comply with
local guidelines for keeping people safe. Friends and family are waiting
expectantly for the day when kids going to school and adults going off to work
become the norm again. These sentiments are quite understandable.

As a compensation professional with decades of experience in
the world of business, I have watched with interest as organizations responded
on-the-fly to the crisis conditions imposed by a global health emergency and
downstream ripple effects on the economy.

Businesses across the country looked to the federal
government for economic relief. Many also looked internally, approached
business with new perspective, and took action in response to the sudden onset
of a legitimate risk. From reducing executive and worker pay, to approving
temporary pay increases for front-line workers, and completing layoffs order to
reduce payroll exposure, none of these decisions were easy. And unfortunately,
a number of organizations, large and small, are taking desperate measures such
as filing for bankruptcy or closing their doors for good.

The health and economic crisis we are experiencing has also
laid bare some of the unspoken, and largely unreported weakness in pay practices,
income growth, purchasing power, home ownership and racial inequities, not to
mention changing trends in the accumulation and distribution of wealth.

Let’s not fool ourselves into thinking that all was well six
months ago.

Politicians and Wall Street analysts want us to believe that
the U.S. economy (six months ago) was the strongest in history. And yes,
unemployment was low and indices on the capital markets were pushing all-time
highs.

However, celebrations of these new heights of prosperity
tended to ignore widespread economic instability just below the surface. One
study of 401(k) plans, representing five million Americans, reported that the
median account balance is around $22,000 (Pew Trusts, 2016).

Another study estimated that approximately 40% of US workers
and small businesses were only two-missing-paychecks away from personal
insolvency (Passy, 2019).

The Bureau of Labor Statics’ annual report, A Profile of the
Working Poor, found that 40 million Americans were members of the “working
poor” in 2017—the latest data
available
(BLS, 2019).  

So let’s face it, a return to normal on Wall Street does not
solve much of anything for these citizens.

The impact of the global pandemic has shed new light on systemic
excesses that many find alarming: Income inequality. Under-representation. Racial
discrimination. Unethical business practices.

To illustrate, some
companies that touted salary decreases for executives turned right around and
awarded off-cycle stock grants
, creating the likelihood of excessive windfalls.
Furthermore, it has been noted that approximately forty large companies have
filed for bankruptcy protection this year, and yet over a third of these
companies intend to pay executive bonuses in full. Crisis? What crisis?

Recently, a reputable consulting firm published guidance for
companies as they return to normal pay practices. The guidance suggested a
cadence for reinstating pay to normal levels.

What struck me was that the author did not even entertain
the notion that executive pay levels should not return to pre-pandemic levels, and
that upon reflection, the crisis facing us today creates an ethics-based
opportunity to re-set levels of executive pay that delivers a more equitable new-normal.

Boards of directors have historically depended exclusively on
external benchmarking to set executive pay levels. Today, directors have an
opportunity to consider other factors such as CEO pay ratio, pay inequity,
racial and social injustice, and rates of pay growth. A noted university
professor and corporate governance authority has advocated
such an approach for years
—this may not be new thinking, but these circumstances
do present a unique opportunity for positive change.

Balance. Fairness. Stewardship. We must return-to-normal by embracing
these core principles, revitalizing our sense of what it means to be human. Those in
leadership all across the business world must find the courage to stake out a new
normal that actually makes our collective societies equitable, healthier, and
economically strong from the ground up.

References

Bureau of Labor Statistics (2019). “A Profile of the Working
Poor, Report #1079.” bls.gov
 
Passy, Jacob (2019). “Millions of Americans are just one paycheck away from
‘financial disaster’.” marketwatch.com

Pew Trusts (2016). “Employer-Sponsored Retirement Plan
Access, Uptake and Savings: Workers report barriers and opportunities.” Pewtrusts.org

https://www.wsj.com/articles/coronavirus-crisis-dents-salaries-not-stock-awards-for-many-ceos-

https://lerner.udel.edu/sites/default/files/pdfs/Elson_Ferrere_Paper.pdf

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