While technology firms are acting very quickly to support workers in the face of COVID-19 through enhanced leave policies and special stipends, most firms are taking time to monitor market signals before making substantial changes to their core compensation programs.
Compared to much of Asia, countries like Italy, and states like New York, most of North America is still in the relatively early days of combating the COVID-19 pandemic. However, for technology companies in this part of the world, the workforce and compensation impacts of COVID-19 are already acute. In just the last two weeks, HR leaders have had to quickly take action on a range of issues, from enacting new policies to keep workers safe to fortifying benefits programs to reassessing equity grants that have greatly diminished in value.
In mid-March, we connected by video conference with HR and compensation leaders at more than 30 leading technology firms based in the United States (U.S.) to learn more about how they are adjusting to daily events on-the-fly. This article, while not a comprehensive assessment of market practices, summarizes key themes from our conversation and provides insight into where other companies in the sector will likely head next. We also recognize the COVID-19 pandemic continues to unfold, so we remind readers that our conversation represents a specific point in time in what is an ever-changing environment.
For a more comprehensive look at emerging workforce and rewards practices in response to the COVID-19 pandemic, readers can download the results of our recent pulse survey of more than 2,000 organizations in North America and Europe, conducted between March 17-20, by clicking here.
Large U.S.-based technology companies are already known for their generous employee perks and benefits, but many firms are actively considering, or have already added in recent weeks, enhanced benefits aimed at addressing acute needs during the COVID-19 pandemic. These actions include:
These actions are largely in line with the broader market. More than three-quarters of North American respondents (78%) in our recent pulse survey said they have already augmented family care benefits, including sick leave and childcare allowances. About a quarter of the survey respondents are classified as technology firms.
- Additional pay for back-up childcare;
- Continued pay for hourly workers, including in some cases contract workers that are furloughed by remote working policies (e.g. cafeteria workers and shuttle drivers);
- Upgrading employees’ Internet bandwidth at home and providing a stipend for home office equipment such as monitors;
- Adding sick leave, in many cases enough to equal 14 vs. 10 total days off;
- Providing up to two weeks of time off for a broad range of reasons (e.g. caring for children or elderly);
- Enhancing mental health support for employees or better communicating existing mental health benefits to the workforce; and
- Extending eligibility to apply for short-term leave if employee can’t work from home or work full time due to extenuating personal circumstances.
HR leaders at our largest technology clients emphasized the need for empathy during this time. “We know many of our employees want and need mental health support during this time so we’re working hard to provide them with additional resources,” one client remarked. “Everyone needs to be understanding with childcare and kids interrupting work during this time,” said another.
Reconsidering Salary Increase Schedules
Overall, according to our recent pulse survey, 15% of North American technology companies have already acted to freeze or postpone merit increases. This finding aligns with the tenor of our discussions with leading technology firms. While one client said, “We have deferred base pay adjustments to later in the year as we’re closely watching our cash expenditures right now,” most other participants, especially at firms with calendar fiscal year ends and merit increases scheduled on or before April 1, report they are moving ahead as planned.
Among firms with later focal periods (e.g., June, July or August), many acknowledge they will use the extra time they have to evaluate their options and monitor market trends, which includes considering what potential delays in their merit cycles might look like. At the same time, these clients were quick to point out that exploring alternatives does not mean they will take action. At this time, all would prefer to stay the course.
Assessing Equity Strategy in a Turbulent Market
The stock market has lost significant value since the COVID-19 pandemic hit the U.S. — erasing nearly all of the gains made in the past four years. This has rapidly upended both new-hire and ongoing equity grant guidelines in place for years on end. However, since hiring is generally slowing across the sector (although not in every corner), most businesses have moved quickly to begin handling new-hire awards on an ad hoc basis. “People that are being hired today are getting double the shares than our employees hired just a few months ago,” remarked an HR executive at a large technology company. “While this isn’t a huge impact across our workforce because we’re selectively hiring, we may need to address this disconnect in the future for things like internal pay equity.”
When it comes to ongoing awards, either method that a company uses to calculate equity awards — a value-based approach or a number of shares approach — will run into hurdles at this time. When companies grant equity to deliver a certain value, firms experiencing a declining stock price will need to grant more shares to deliver the same value, thus increasing burn rates and equity overhang. Given current volatility, it is important to determine how many additional shares you expect you’ll need to cover 2020 awards and what the allowable limits are for your share plan. For those firms granting the same number of shares regardless of price, the opposite will be true: If you grant the same number of less valuable shares the value of the equity award will drop, which may create significant internal equity concerns.
Companies have several approaches they can take when addressing equity awards that have greatly diminished in value. With an overall slowdown in hiring and onboarding across many, though certainly not all, companies, some of the pools originally allocated for new hires, could be repurposed for retention or to address underwater equity. And with a significant decrease in unvested value of restricted stock, there is the risk that competitors will use this opportunity to poach talent for critical roles. Since employees have seen their walk away value decrease so much in recent weeks, new-hire offers can look more attractive than they had in the past 10 years. Given this dynamic, we recommend businesses monitor the unvested value held by employees in the most critical roles to assess retention, even during these volatile times.
Another approach is to simply wait to see how the market responds in the coming months. That appears to be the favored approach at this moment in the pandemic crisis. Just over three-quarters of all North American respondents to our pulse survey say they don’t expect the stock market to impact equity grants made this year.
“We don’t know how long this situation will last and how it will impact the market so it’s important not to take drastic actions too early before you have enough information,” says Olivier Maudiere, associate partner of the Rewards Solutions practice at Aon.
Adjust Sales Quotas
While it may be too early to fully assess the impact COVID-19 will have on sales results this year, most clients we spoke to already know their sales plans will need to be adjusted. One of our clients said, “My team is beginning to hold conversations with sales leadership and we fully expect to change their sales quotas for the year.”
However, before making any substantive changes to your sales compensation plan, we recommend establishing a strong governance framework that includes a cross-functional team with the responsibility to review, approve, document and communicate all changes to the sales plan. Also, test the potential impact of proposed changes to both individual salespeople and to the company through an impact analysis of various performance and payout scenarios.
We’re in the early days of this crisis and many of our technology clients say it’s premature for them to substantially alter their sales plan now. Still, we recommend considering short-term solutions while you wait for a longer-term view to emerge on economic conditions and the impact to your business. Interim actions can include providing short-term goals, adjusting sales targets for a temporary amount of time or adjusting payout curves.
Above all, it is critical to communicate to your sales force that you are aware of the challenges they face and are ready to take some actions, both to ensure they remain engaged and to drive positive sales behaviors at time when clients and prospects may face incredibly challenging circumstances.
Additional Resources from Aon
For more information about how businesses are responding to the current pandemic, including stakeholder communication, health and benefits impacts and business continuity planning, please see Aon’s COVID-19 Response Site here.
To download complimentary results of our pulse survey on Navigating the Impact of COVID-19 on Workplace and Rewards Practices in North America and Europe, please click here.
For more information about how total rewards are being impacted by COVID-19 across all industries, see our recent article Considerations for Your Total Rewards Strategy in Response to COVID-19.
Finally, if you have any questions about the topics discussed in this article, please reach out to one of the authors or write to firstname.lastname@example.org.
COVID-19 Disclaimer: This document has been provided as an informational resource for Aon clients and business partners. It is intended to provide general guidance on potential exposures, and is not intended to provide medical advice or address medical concerns or specific risk circumstances. Due to the dynamic nature of infectious diseases, Aon cannot be held liable for the guidance provided. We strongly encourage visitors to seek additional safety, medical and epidemiologic information from credible sources such as the Centers for Disease Control and Prevention and World Health Organization. As regards insurance coverage questions, whether coverage applies or a policy will respond to any risk or circumstance is subject to the specific terms and conditions of the insurance policies and contracts at issue and underwriter determinations.
General Disclaimer: The information contained in this article and the statements expressed herein are of a general nature and not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate ni the future. No one should act on such information without the appropriate professional advice after a thorough examination of the particular situation.