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The future of pay in the new normal

Lee Voon Keong and Ishita Goel
Lee Voon Keong and Ishita Goel • 5 min read
The future of pay in the new normal
Businesses are looking to manage a new world of work in a post-Covid-19 economy. From the human cloud and digital nomads, to global workers and asset-light businesses, innovative workforce models are being debated and steadily adopted.
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(July 9): Businesses are looking to manage a new world of work in a post-Covid-19 economy. From the human cloud and digital nomads, to global workers and asset-light businesses, innovative workforce models are being debated and steadily adopted. As the way work is done is changing, there is also a steady transformation in the way the workforce is compensated.

For example, some organisations pay “crowd workers” by on-demand tasks via sites such as Amazon Mechanical Turk, while others regularly pay a global workforce which is location-agnostic. Yet others such as Uber and Airbnb pay a workforce that is self-employed but delivers their company’s experience.

Traditionally, pay has been driven by three key factors — role, location and worker type. It is defined by the role of the talent, and the type of work, job level and skills that he/she has. Location of the role also determines cost of living and, ultimately, cost of talent. Different worker types such as full-time, part-time, contingent or gig further impacts pay.

Amidst the adoption of diverse pay frameworks for different working models, the recent Covid-19 crisis has not only accelerated the transformation of pay, but also morphed the lens through which businesses look at pay.

Revisiting the Role Factor

To cope with the pandemic, organisations worldwide have taken a variety of actions to ensure continuity of business, including instituting pay cuts, unpaid leaves, furloughs, and redeployment of employees with no change in pay. Some have provided front-line employees with hardship allowances or minimum wage increases. There is a common thread across these actions — the priority has been to keep the workforce employed through these uncertain times, despite the need for temporary or permanent cost-cutting measures.

Aon’s latest Covid-19 Southeast Asia Pulse Survey found that 56% of organisations in Asia expect an accelerated focus on workforce agility and internal mobility as a result of Covid-19, several key considerations emerge. For instance, how do organisations pay for roles vis-a-vis pay for skills? Perhaps there could be flatter or tiered pay structures for less traditional and more networked organisations. Businesses are also probing the relevance of underlying principles for short-term and long-term incentive plans when deciding pay-linked performance targets.

Managing location-agnostic talent

According to The Economist, pre-Covid-19 estimates indicated that there would be a billion “location- independent” workers by 2035. This will only get compounded now, as every organisation revisits the relevance of physical offices, places heightened focus on digital transformation and increases the use of virtual processes across functions.

Aon’s Covid-19 survey found that 83% of organisations are considering permanently changing their working models across Asia, and pay for different working models is raising crucial considerations.

Pay structures and benchmarks could differ for employees working in different working models such as office versus remote. There are also legal and taxation implications to consider as organisations move towards managing a location-agnostic talent pool.

Emergence of a different workforce

With more than a third of organisations realising the need to adapt their workforce planning models according to Aon’s Covid-19 survey, many are looking to leverage different workforce compositions and optimise spend. For instance, flexible workers are augmenting the workforce with skills and delivering higher productivity. As a result, the differential in pay and benefits for different worker types has become more pronounced than ever.

Before the pandemic, the human cloud contributed to US$50 billion ($70 billion) of the world’s revenue, according to The Economist. Now, as more work is done remotely, that number is set to increase exponentially. With a wider talent pool at their disposal, organisations need to deliberate upon whether they’d adopt a differentiated or common pay philosophy and structure for different worker types.

How can organisations enhance personalisation of pay to worker types and models? When determining pay benchmarks for different worker types, businesses now need to take a more holistic view of pay — from employee pay and benefits to cost to company.

Accelerating the future of pay

Covid-19 has moved the future of work forward significantly. Organisations need to stay agile as they rethink their pay principles and shape their strategies towards long-term drivers of pay and performance. There are also a variety of relevant response frameworks that will help organisations address compensation priorities and align them to the outlook of their respective industries.

Pay will be one of the key factors providing competitive differentiation in the new normal. It will be critical for businesses to define and adapt pay for different worker types and nature of work for the long term. They need to be flexible, fair and transparent in compensating talent and optimising people spend at an organisation level while creating equity across pay models.

A personalised, flexible, yet holistic pay system with a design and delivery that is enabled through technology is the key to keep employees engaged and ensure business productivity in the journey towards the new normal.

Lee Voon Keong and Ishita Goel are Associate Partner and Consultant, respectively, of Human Capital Solutions, Southeast Asia, at Aon.

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