Article: Appraisals during times of COVID-19

Compensation & Benefits

Appraisals during times of COVID-19

As businesses across many diverse sectors take a hit with the COVID-19 outbreak, Morgan Stanley and Goldman declare global recession could be under way. Let’s explore how the impact of the coronavirus crisis on businesses and economies is affecting or could affect compensation and benefit decisions of employers.
Appraisals during times of COVID-19

A recent Willis Tower Watson global survey titled ‘COVID-19 Hourly Employee Pay Practices 2020’ revealed that about 54 percent of the surveyed employers perceive ‘moderate to large negative impact’ to business results in the next 12 months. 

Travelling is banned or asked to be minimized, hotels can’t host large events, dine-in restaurants in many cities across the world are now closed as well. Several countries are in a state of lockdown and businesses have suffered a great setback. As no one really knows when the situation will get better, leaders revisit many people and business decisions with extreme uncertainty. 

Managing costs among several other things becomes critical. But at the same time employers have to retain their best of the best talent and also support their staff and ensure their job security. How do talent and business leaders strike a balance? What compromises should be worth making? As we can already see in many reports and latest updates, some CEOs and business leaders have stepped up and taken the bold decision of taking pay cuts to support their respective companies and other employees. 

Some employers, especially in the aviation and hospitality sector had to take the harsh decision of laying off employees. Hiring for many companies has been stalled and the news is that for some of them even appraisals might also push back. 

For instance, C P Gurnani, CEO of Tech Mahindra recently shared with ET, “Bonus, variable pay or any increment is right now on hold. At this stage, most of the world is addressing their first priority: keeping people safe"

‘Capacity to pay' vs. 'need to pay'

Based on our interaction with the leaders and experts in this space, we identified that organizations today are sailing in three boats, one where appraisals have closed and letters have been distributed in January, since they follow a calendar year of performance. So, no COVID impact on them. 

Second, companies which follow the financial year for performance reviews and are watching out for what other companies are doing, since nobody has the right or wrong answer. 

Ruchika Pal, Group Head- Corporate HR, Apollo Tyres Ltd shared, “Globally, companies can see the imminent economic downturn and are trying to balance 'capacity to pay' vs. 'need to pay', while keeping in view their employee expectations.” 

Then there is a third category of companies, for them the increments are due in June-July and they have more time to react and respond to the economic situation and they also have the option to follow the practices of the second group of companies. 

“But the COVID-19 impact on the appraisals is imminent and here to stay.” believes Pal. 

Rajul Mathur, Consulting Leader India – Talent and Rewards, Willis Towers Watson also agrees and reiterates, “While globally the organizations are still assessing the larger impact amid keeping their heads above water, a critical issue to be addressed would be the impact on employee rewards (bonuses & increments).”

Bonus pay-outs 

For companies in the first group, following the Jan-Dec cycle, bonus payouts may have already happened and hence likely there may not have been much impact on quantum. For companies that follow the April- March cycle, the performance period is in its last month (March 2020) and there may be very little or no impact. 

For instance, a report indicated that Tata Consultancy Services has already completed its annual appraisals for the year, but has not yet decided on the payouts. 

However, Mathur shared that the current situation is surely going to impact overall sentiment and hence may lead to slightly conservative bonus pay-outs and not necessarily a complete washout. There are two more trends that he predicts could take shape:

  • Muted salary increases
    Mathur shared that anticipating tough quarters ahead, and business getting further impacted, there is a chance that employers may give low percentage increases.
  • Delay increments by at least quarter
    Further, given that employers continue to monitor the situation closely some employers have decided to delay the increments by a quarter. Should the situation improve, or change for the negative, we will likely see an appropriate response from them.

“The majority of Asian employers have maintained pay and benefits for employees unable to work due to COVID-19. It would be fair to say that employers are taking an informed but compassionate approach on compensation amid continuing uncertainty,” said Mathur. 

Informed but compassionate approach on compensation

Some employers have already rolled out contingency plans. Some have already declared pay cuts.  But most employers are currently taking a cautious wait and watch approach and are contemplating on how to tackle this problem. 

There may be a possibility that the actual increase may be lower than projections especially in the sectors where the impact of COVID is more severe said Mathur. Appraisals are going to be affected, added Pal. 

But talent would be of utmost importance for businesses in these times of crisis. As Nicolas Dumoulin, Managing Director, Michael Page India highlighted while some sectors could be under pressure and look at optimizing their cost structures just to stay afloat, retaining talent would also be key. 

To ensure business continuity, to identify opportunities in times of crisis, to innovate, plan and operate new viable business models, companies would need their people and their teams in place. In fact, Dumoulin shared that if all of this settles down, and the situation gets better and the economy bounces back in a few months, employers would need more and more people. 

So even if some companies have to take difficult decisions like pay cuts or lay offs, transparency is key, suggested all the three experts, People Matters interacted with. 

“Employers need to manage employee expectations and at the same time, also need to ring fence their top talent. The best way is to be transparent in communication and table all the facts clearly, so that all employees know what is coming their way,” said Pal. 

She further added that it is imperative, if employers want to give clear indications to their performers, that they should share the year-end ratings. Keeping everything in abeyance will not be a good strategy, if companies really want to retain their talent. More than the immediate reward, top talent needs to be told that they are the top talent, and communication on the ratings is a step in that direction. This will also indicate to them that when the economic climate is turning positive and companies announce increments, they will get their due. 

“Hence, it is important to keep communicating, and call a spade, as spade!” exclaimed Pal. 

Vipul Dave- Head (Human Resource), Cosmo Films told People Matters that,” It is in fact, time for companies to stand by the employees because there is fear and uncertainty all around." 

Way forward

The fear of COVID-19 further impacting 2020-21 is looming large and now, organizations are trying to make ends meet, with imminent lock-downs, production halts, supply chain disruptions and lack of workforce participation. Pal suggests for employees, it's best to hold their grounds. She said, “We all need to do our bit and stand together in tough times.”

Well! No one can really be blamed. It is a difficult time for all and what everyone can do best at this time of crisis is keep trying. Keep trying to find that balance between maintaining employees’ and customer’s health and ensuring business continuity. The challenge for business and talent leaders would hence be on how to make informed but compassionate people decisions amid the COVID-19 crisis. 

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Topics: Compensation & Benefits, #COVID-19

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