COVID-19 Impact on Merit

Drinking my morning cup of coffee, I look out my window, and for a moment it looks like the world is standing still. For years, my street has been packed with cars by 6:00 AM on weekday mornings, people rushing on to the expressway, a few stopping only for gas or breakfast on the go. Today, a weekday in May, at 6:05 AM, the street is mostly quiet.  Though many employees across the state have started working in the office again (after the lockdown due to the COVID pandemic), many are still working from home. The coffee shop two doors down has only one car, perhaps a patron trying to support the local businesses. It looks like the world is standing still.

But the world is not standing still. The clock continues to tick, and a page on the calendar flies away every 24 hours. Before you know it, that time of year rolls around when employees start talking about pay raises. Is your company processing pay raises this year? Are you doing performance reviews? I’ve been getting these questions a lot lately.

Some companies use the terms “Merit Review” and “Performance Management Review” interchangeably. Though the two should go hand-in-hand for Compensation professionals, the performance cycle is where managers review the employee’s performance to help improve quality or award a promotion or a raise based on great performance. The merit review is the process where HR professionals discuss the performance with the employee’s manager to calibrate whether the promotion or raise is biased or substantiated based on overall feedback.

For the purpose of today’s commentary, I will be referring to the Merit Review, which focuses on salary adjustments, or more often than not, salary increases. The percentage of merit increases varies from year to year, depending on available funding allocations.

Companies that had their Review cycle in the first three months of 2020 fashioned their budgets, promotions and raises based on predictions from late 2019. Most likely, these decisions were formed before the COVID-19 outbreak was characterized as a pandemic by the World Heath Organization. For other companies, however, the Merit Review has not occurred yet this year. And, leaders and the People Strategies Team (aka HR) are finding themselves delibrating in alignment with the budget on what salary adjustments to make, if any.

As the COVID-19 pandemic continues to intrude into our daily lives, you may be wondering how your company will address Merit this year. A poll from WorldatWork conducted on April 3rd, 2020 stated that “57% of organizations have already paid or still plan to pay out salary increases in 2020. However, 19% of 238 employers polled said they are waiting to decide on whether they will pay out salary increases and 17% said they are cancelling salary increases in 2020.”

A recent poll conducted by CHRG showed that the number of companies postponing or lowering salary increases has increased over the last couple of months:

Even if your company found itself in a very strong financial position at the onset of the COVID-19 pandemic, you may find that there is a certain degree of hesitation of the long-term impact this condition will impose. Most companies are continuing to monitor the fiscal condition on an almost daily basis and are debating when and how to make adjustments to the fiscal budget.

Your Finance department may cede to a small salary increase budget this year, or they may declare its reluctance to process increases at this time. What should HR leaders do in order to ensure a positive employee experience through this difficult situation? How do you communicate the quandary to employees and maintain a tone that is about a business need, while giving your employees some sense of calm or reassurance? Your company’s culture and brand takes years to build. Employees who have been retained have seen their colleagues get laid off, furloughed or experienced pay cuts. Right now, they are feeling exhausted of hearing about the uncertainty of the world and the financial condition of the company. Still, you can offer solid answers. Promote the good deeds the company is doing to offer them a safe environment, the protective gear you have donned them or gifted to the community, the avenues of working remotely that have been opened for them, the sick policies that have expanded, and the flexible schedules that allow them to be productive when they are not home-schooling their children. This is the time to solidify who you are as a company without having to deplete your reserves or lines of credit.

Now more than ever, your workforce needs to hear your plan and how you are being strategic. Employees are willing to accept the financial condition of the company, if the company has a plan and is being strategic to ameliorate the future. They can accept a zero, minimal, or delayed merit increase for up to a certain period of time.

It is vital for HR and senior leaders to show employees how the company plans to lead them through these uncertain times. And to be specific with examples, such as how you are streamlining costs, or showing why you are doing this and how. Tell them about the compensation tools you’ll be using to monitor employee turnover in the marketplace and future staffing needs after the pandemic has subsided. Announce your plan of when you plan to revisit the Merit cycle or when you plan to make adjustments.

If your company is processing salary increases this year in spite of the changing landscape, kudos to you. But be prudent. When the crisis is over, many things will not go back to the way they were. The gold rush may also be over for companies that are currently concentrating on the pandemic demands.

Despite the double digit unemployment rate in the U.S. and many companies struggling to survive, many companies are still hiring (see Merit pay is a good mechanism in fostering a strong, highly engaged workforce, increasing your chances of employee retention.

Merit increases are intended to reward high performers, which in turn, helps incentivize others to do better. They can also work towards motivating employees to help drive your company’s goals as it directly links their individual effort and aspirations to a reward. I recognize that the current uncertainty of the economy has made forecasting business conditions very difficult, but do not be short-sighted in thinking that your employees “feel lucky to have a job.” Remember: the clock keeps on ticking.