As far back as 2012 we wrote about the cash crisis facing the sector and the impact on pay. Four years later the challenges have considerably worsened. Who envisaged them lasting this long?
For juniors and non-producing companies these are not normal times and the normal pay process needs to be temporarily put aside. Here’s what we see.
Compensation policies assume a robust employment market and target the attraction and retention of needed skills; sound principles but that philosophy no longer applies. Who now poses a real threat to organization skills? Recruitment other than for producing companies and a few key positions is effectively dead. Do traditional competitors for talent currently have the wherewithal to pose a threat?
A survey of competitors will likely confirm that the industry is paying lower compensation for many positions than just a few years ago, reflecting lower compensation paid to new incumbents and reduced short and long term awards. Lower compensation cannot be passed along to current employees without their agreement.
Employment levels are reduced and those employees that remain are no doubt engaged, but may also feel tied by prior incentive awards. Unvested long term grants may have reduced in value but continue to do their work and besides, few alternative industry opportunities offer improved security.
Many juniors have or are reaching insider equity pool limits that prevent further awards. Deferred cash with vesting that corresponds to strategic plan events that of necessity have to finance the payout (admittedly not easily achieved) are an alternative where an additional retention incentive may be required.
Annual incentive plans too have been suspended or replaced with fixed awards. For those remaining, subjective “bonus” type plans that look back after year end are being abandoned for plans that judge performance against pre-set quantitative stretch targets.
After several years of no pay increases “catch up” awards that recognize those foregone during prior years of a temporary downturn are often considered. However, should survival warrant additional pay or is that in effect, the job, in this new environment?
Companies are looking at their teams and asking at this point whether the skills are absolutely necessary, do less costly alternatives exist, or could we ask for fewer hours in exchange for reduced pay.
Shareholders expect Boards to make tough calls during these times – it is the nature of the industry. These will be decisions that threaten culture and test values affecting executive, staff and board compensation. These warrant extensive consideration to be clear on rationale, the potential consequences and to enable clear communication upon implementation. A respectful, well planned, well communicated strategy while unwelcome, will be received realistically.
Whether you are an employee or an employer keep in mind these considerations:
- The chances are that competitive comparison will show pay to be ahead of the market
- Traditional competitors likely do not represent a realistic current threat
- Further organizational measures may be required to survive
- Additional retention incentives may not be necessary; and
- Survival does not necessarily warrant a “catch up”
If we can assist in understanding in more detail the current pay environment please call 905 842 7916 or email to discuss.