Rethinking Compensation in Uncertain Financial Times
Financial uncertainty is a burden for businesses. During economic uncertainty, It often appears likely that an economic decline is imminent, but the timing is typically unclear. This can lead to layoffs, bank defaults, and rising interest rates. So what are HR professionals and employers supposed to do?
Read on to learn how financial transparency can positively impact your organization amid economic and financial uncertainty.
How Does Financial Uncertainty Impact Business?
The current economic uncertainty is driving businesses to make significant decisions regarding the future of their organization—one of these being layoffs.
A layoff is when an employer either temporarily or permanently dismisses an employee and is usually a result of an organizational restructuring, downsizing (reduction in force), or economic pressures that impact the industry.
Compliance can even further complicate layoffs. In particular, employers who fall under the umbrella of the WARN Act must navigate its provisions correctly.
The Worker Adjustment and Retraining Notification Act of 1988 (WARN Act) is a U.S. labor law that requires employers to give workers 60 days’ written notice before a covered entity closes or conducts mass layoffs.
“...a reduction in force that is not the result of a plant closing, and that results in an employment loss at a “single site of employment” during any 30-day period for (1) at least 33% of the employees (excluding part-time employees), and (2) 50 or more workers (excluding part-time employees). If 500 or more employees (excluding part-time employees) are affected, the 33% requirement does not apply.”
This means that mass layoffs require affected employers to communicate the plan for layoffs to the staff ahead of time.
Many states also have mini WARN acts, such as the Tennessee Plant Closing and Reduction in Operations Act, which applies to employers with 50-99 employees. This act applies to hourly employees, salaried employees, and managerial positions.
The Department of Labor has published an exhaustive Employer’s Guide to Advance Notice of Closings and Layoffs, but making sense of such a complex document can be difficult. Because this is a legal issue, definitions are vital.
Recent layoffs include Indeed, which cut 2,200 employees from its 14,600-employee workforce. Glassdoor also reduced its workforce by approximately 15%.
Here is a list of some of the major corporations which conducted layoffs thus far in 2023:
Roku - 6% of the workforce
Meta - 13% of the workforce
Disney - 3% of the workforce
Hubspot - 7% of the workforce
Paypal - 7% of the workforce
IBM - 1.5% of the workforce
Spotify - 6% of the workforce
Microsoft - 4-5% of the workforce
Google - 6% of the workforce
Amazon - 1-2% of the workforce
Salesforce - 10% of the workforce
This list is not exhaustive, but only a select number of organizations that have conducted layoffs in 2023.
But layoffs are only one outcome of the financial and economic uncertainty in today's market. Interest rates are also rising, which means money is more expensive.
According to Statista, inflation has become the number one worry across the world as of September 2022. For perspective, in 2020, only 8% of adults found inflation to be a primary concern, while nearly 50% of adults listed the Covid 19 Pandemic as a chief concern.
This data has since taken a major shift, with only 12% of adults now claiming the Covid pandemic is a chief concern and approximately 40% claiming that inflation is their primary worry.
Signs have begun pointing more clearly at a nearing recession, with around 48% of investors eyeing 2023 as the most likely timeframe.
So, what does HR do knowing the market is unstable and filled with uncertainty? Where do employers go from here?
Certainly, layoffs will be a consideration for many organizations. But for most companies, layoffs are a last resort, as they cause hardship for many employees, promote stress and anxiety for remaining employees, and harm company culture. It is time for organizations to consider financial transparency.
Introduce Financial Transparency
Financial uncertainty places stress on current employees. They are worried about losing their job, keeping to tighter budgets, reconsidering large purchases such as a home or car, and concerned about their money's safety.
The recent Signature and Silicon Valley Bank failures remind your employees that their money may not be safe in times of financial uncertainty. This is coupled with worrying about whether they will even have a job next week.
Now is the time for financial transparency. Businesses must remain open and transparent about the state of the organization's financial goals, pacing, and stability.
The first step in doing this is uniting on the same front. Most organizations will have a finance department and an HR department. Both facets of the organization are working toward organizational stability amid the economic crisis. Finance knows that the organization needs to remain financially healthy and secure, and HR needs to communicate and inform employees of the state of the organization.
If HR and Finance are not communicating effectively, the level of transparency is minimized, which can create a sense of frustration and anxiety among employees. This is bad for business and can affect productivity, morale, and company culture. This is why it is so vital for companies to remain fully transparent with their finances.
At BerniePortal, we review our finances every month. This is then communicated to employees and staff so the entire organization is aware of our financial goals, how those goals are achieved, and their impact on the company when they are or are not met.
Making your employees aware of your organization's general health and stability will reduce the stress associated with financial uncertainty. For example, the day that Silicon Valley Bank defaulted, our CEO notified the entire organization about the state of our finances and the circumstances of this default as it relates to our business. This transparency is crucial for businesses because it shows your employees that you are not looking to hide information but rather disclose it at the onset of any potential concerns.
But transparency goes beyond disclosing company financials. A transparent culture should be reflected in all aspects of the business. Dr. Christie McMullen, CEO of AIM and best-selling author, explains this well. She says:
"Transparency in the workplace is a key factor in creating an environment of trust, safety, and respect.
By openly communicating information with employees - such as company policies, organizational goals, performance metrics, and more - organizations can foster a sense of trust and collaboration among their team members.
Transparency also sets clear expectations between employers and employees, creating a more productive and harmonious workplace."
While financial transparency is crucial for businesses to implement, it should indicate a broader workplace transparency philosophy as well. This also includes pay transparency.
Promote Pay Transparency
Pay transparency refers to open communication from an employer regarding compensation. This can include transparency around base salaries, pay levels or ranges, bonus compensation, and even policies around discussing wages internally.
Many employees and job seekers are pushing for more pay transparency to close pay gaps in the workplace. Nearly 2 in 3 workers (63%) prefer to work at a company that discloses pay over one that does not. These findings demand that organizations assess their current pay policies and procedures.
Not only are employers feeling pressure to ignite change around pay transparency, but many states are taking legal action in favor of pay transparency. In recent news, New York City and the state of California have started taking steps toward enforcing laws that will protect employees regarding compensation.
New York City’s Pay Transparency Law was enacted on November 1, 2022. This new law made it an unlawful discriminatory practice not to include minimum and maximum pay ranges when publishing an open job position. In doing so, they hope the law will encourage pay equity among those who historically have received lower pay—including women and people of color.
Following in their footsteps, California lawmakers recently passed a law, SB 1162, that would strengthen previous pay transparency laws by requiring California employers to provide pay ranges when publishing or making known an available job. In addition, the law would require employers of 100+ employees to submit a pay data report supplementing existing annual EEO-1 reporting requirements.
Even if your state does not require pay transparency, it is still a good idea to evaluate the benefits that it can provide your organization.
BerniePortal is an excellent resource to help organizations looking to implement wage transparency. With the recent push from employees and news of new state-level laws, many HR teams may feel pressure to remain compliant. BerniePortal can help organizations from ensuring employees have access to company compliance documents to seamlessly adding pay ranges to job postings.
Employers and HR leaders are increasingly turning to applicant tracking systems (ATS) to optimize the recruitment process. BerniePortal’s Applicant Tracking feature widens the applicant pool with seamless integration with Indeed’s job boards. It also makes it easy for organizations to be transparent about pay in job listings. BerniePortal job listings are entirely customizable, allowing you to add salary ranges in the description, and they can be updated at any time—even after posting.
Pay transparency goes beyond external outreach of job postings and is often sought after by internal employees. At BerniePortal, we give each department access to a levels document that breaks down what employees need to accomplish to advance in their careers and increase their salaries. These documents can be stored in BerniePortal’s Compliance feature, ensuring every team member can access them. See a demo of our award-winning software today.
You can also stay informed, educated, and up-to-date with all things HR by using BerniePortal’s comprehensive resources:
BernieU—free online HR courses, approved for SHRM and HRCI recertification credit
BerniePortal Blog—a one-stop-shop for HR industry news
HR Glossary—featuring the most common HR terms, acronyms, and compliance
HR Guides—essential pillars covering an extensive list of comprehensive HR topics
HR Party of One—our popular YouTube series and podcast, covering emerging HR trends and enduring HR topics
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