Covid-19 Disruption To Talent Acquisition And Compensation

Employers should focus on the overall financial wellbeing of their employees

Let us explore the impact Covid-19 has had on talent acquisition in the context of reward and equity compensation. We’ll look at the:
 

The future of the workplace is now. David Clarke, PwC’s principal digital strategy and innovation leader, said that the “shift toward the digital office isn’t just temporary. Instead, the pandemic has catalyzed a shift that was already in the works for a while.”¹ The disruption created by Covid-19 has accelerated the future of the workplace, testing the limits of the past and breaching the boundaries for talent acquisition. Jeff Weiner, LinkedIn’s Executive Chairman, said, “Remote work will open many new doors going forward, but perhaps none more important than the potential to disapprove the adage ‘Talent is equally distributed but opportunity is not.’

With remote work (and hiring) gaining widespread acceptance, opportunity should increasingly be available wherever talent can be found.”² For example, an exceptional programmer in Menlo Park, CA, who is not willing to relocate has now become a viable candidate for an employer anywhere in the country. Similar to Mr. Weiner, Mark Zuckerberg, CEO of Facebook, has said, “Remote work lets us access talent pools outside of traditional tech hubs in big cities.”³

This new reach employers have into talent pools present considerable challenges for compensation groups and recruiters, who encounter varying compensation schemes as they move across geographies and industries to attract talent.

A prime example of this can be illustrated by the acquisition of a Silicon Valley payments company by a large New York City-based financial services firm. Both the geographical and industry differences proved to be daunting while harmonizing the two companies. The firm found significant disparities between the compensation schemes and needs of the employee populations. The financial services firm’s Global Head of Talent Acquisition stated that “while we knew the region and industry were going to present compensation challenges, we didn’t quite realize the influence an Employee Stock Purchase Program had on the culture of the local workforce as well as the view of ESPP appropriations as a core component of the employees total compensation.” As organizations further their reach for talent, they can expect to find deeper and more diverse talent pools that will present very similar challenges.

Firms are reaching into new pockets of the workforce to identify and attract talent, and are also seeing their employees moving around the country and globe to satisfy their own lifestyle wants and needs. Whether they’re fleeing a major city for safety concerns, returning home to be closer to family or setting down roots in areas that present them with economic advantages, the migration is real and ongoing. Corporations will need to tackle mobility and local taxation issues to ensure compliance with local and state laws. Implementation and application of multi-jurisdictional tax programs can be complex and require considerable amounts of personnel to put in place. Moreover, vesting events for employees will become more complex for issuers and administrators as blended state and local tax rates will need to be applied to accurately capture the individuals’ tax liability.

Additionally, companies are starting to adjust compensation programs to meet “mark-to-market” standards for their migrating workforce. VMware Inc. announced “that all the employees who would continue with a more permanent work from home approach, shall receive a salary reduction of 18%, if they move to a less-expensive city.”⁴ These adjustments can have an impact on the speed or ability for qualified employees to reach deferred compensation benchmarks thus potentially impacting the mix of cash and equity compensation. This can present potential impacts to ASC 718 expense allocations and also dilute the retention value of equity awards.

Government stimulus plans to aid in the economic recovery have had some interesting and unintended consequences. At the start of the pandemic, the federal government introduced the CARES Act. Within this bill, the unemployment insurance provision increased the net weekly cash distribution for displaced workers, which in many cases exceeded the pre-pandemic earnings for employees. This created considerable challenges for employers to entice workers to return to their jobs. In conversation with the Head of Talent Acquisition for a Global Consumer Goods organization, they indicated that issuing equity awards has become a key tool to mitigate the CARES Act impact and attract workers back to the workplace. This practice wouldn’t have been a consideration in a normal environment; however, it was needed to offset the financial loss employees face when returning to the workplace. Compounding this problem is the fact that employees are concerned about their health, safety, access to childcare and financial readiness as they transition back into the workplace.

A great use of equity awards is to recognize the sacrifices many employees made during the heart of the pandemic that can be captured by issuing fully vested and time based shares. A consumer goods company structured its rewards program to show gratitude for employees’ service, which had an ancillary effect: it engendered deep levels of loyalty and generated a positive brand message for the company into the marketplace, which in turn created an uptick in applicant flow to open roles.

Extreme market volatility and uncertainty threaten the value of equity awards and the ability to achieve performance metrics. The component of compensation that was once a driver of wealth accumulation can now be a dark cloud hanging over an employee’s head. When many unvested awards were granted, compensation committees couldn’t foresee that a global pandemic would shut down economies around the world, nor could they anticipate what the impact of this anomaly would have on their companies’ revenues and operating metrics. While markets have rebounded, many performance metrics still remain unobtainable and in turn, the intrinsic and perceived value of the awards has diminished. To ensure companies retain the value of their current awards and also make future awards attractive and obtainable so they can be best positioned to retain and attract top talent, they have or will need to consider adjusting performance metrics.

Finally, companies need to see beyond compensation programs and entrench themselves with the overall financial well-being of their employees. Merely paying employees more in cash or issuing more equity awards doesn’t always mean better financial hygiene. We will discuss potential remedies in the second article of this series—Financial Wellness: The Single Greatest Benefit Employers Can Offer.

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