The Future of Workplace Compensation Post-COVID

COVID-19, as well as other recent trends and events, has led to compensation changes affecting employees of all types—from interns and low-wage workers to remote employees and executives.

Some companies are adjusting executive pay based on environmental or social metrics, while others have reintroduced the concept of localized compensation due to the rise in remote working. The pandemic has also brought the minimum wage issue to the forefront of the national conversation, as well as concerns about the effects of unpaid internships on longstanding class divides.

While government policies will certainly play a role in advancing some of these issues, forward-thinking businesses are already setting the example. Companies that follow in their footsteps will not only improve the well-being and financial security of their employees, but they’ll also help move the needle on important environmental and social issues.

Compensation based on ESG metrics

In September 2020, the World Economic Forum (WEF) published a proposed set of universal ESG (Environmental, Social, and Governance) metrics. This global standard, combined with many other factors and events, has led a growing number of companies to link their executive pay to ESG metrics. A March 2020 survey found that only 51% of S&P 500 companies use ESG metrics in their incentive plans. But in a follow-up survey from December 2020, 78% of companies said they plan to change how they use ESG metrics within their executive incentive plans over the next three years.

One company leading the charge on this is Apple, which recently added an ESG “bonus modifier” to its cash incentive program which can swing the total bonus payout by 10%. Similarly, 10% of executives’ annual incentives at Chipotle will now be based on achieving the company's diversity and environmental goals. And at Shell, the weighting of the company’s energy transition performance on its targeted path to net zero emissions by 2050 may soon double to 20% of directors’ long-term incentive plan calculation.

Compensation based on zip code

Mass remote-work policies due to COVID-19 led many workers to relocate from the urban centers where their companies are based. This trend is likely to continue even after the pandemic: a new Miro study found that 34% of workers say they are likely to relocate if remote work becomes permanent in their companies.

Some companies are adjusting wages and bonuses for employees who decide to work remotely in areas with a lower cost of living, a practice called localized compensation. For example, Stripe is offering a $20,000 bonus if employees relocate outside the Bay Area, New York City, or Seattle and take a cut in their base pay of up to 10%. Slack decided on a similar policy in June. Despite the obvious financial implications, most employees are on-board—75% would take a pay cut to work remotely. 

It’s important to note that remote work also raises tax concerns for employees, especially those working in multiple states or abroad. In the U.S., some states have pacts with local jurisdictions to minimize tax issues for cross-border workers; for example, New Jersey and Pennsylvania have a reciprocal agreement. Whereas employees who choose to relocate abroad may qualify for U.S. income tax avoidance via the Foreign Earned Income Exclusion (FEIE). So while there are unique considerations for remote workers, it’s certainly possible to make the work-from-anywhere benefit work to your financial advantage. 

Minimum wage increases

COVID-19 has reignited the discussion around the minimum wage, which has not increased since 2009 and is currently at $7.25 an hour ($2.13 an hour for tipped workers). Low-wage workers, who are disproportionately represented by women and people of color, were hit the hardest by the pandemic. Most of these workers were unable to work remotely, and upon returning to work, they may have found themselves with fewer hours or making less money in tips.

A $15 federal minimum wage would give 32 million people a much-needed raise. While a nationwide movement to increase the minimum wage has garnered support from President Biden, it doesn’t appear that an increase will happen soon. Regardless, some companies are taking action, with others likely to follow suit. For example, Walmart said last month that it plans to raise its average pay for U.S. hourly workers to at least $15.25 an hour. Meanwhile, Amazon and Target already pay at least $15 an hour, and Costco just raised its minimum wage to $16 an hour.

Compensation for all internships

In 2019, 43% of internships at for-profit companies were unpaid. While many people see these positions as a rite of passage, they actually reinforce longstanding class divides. This is because underprivileged students, many of whom are people of color, can’t afford to work without pay, which makes these valuable internships accessible only to those from more affluent backgrounds. And when it comes time to apply for entry-level positions, students without internship experience may find themselves at a disadvantage. 

COVID-19 has caused both paid and unpaid internships to disappear—22% of employers said they canceled internships entirely in 2020 as a result of the pandemic. While advocacy groups like Pay Our Interns are calling on President Biden’s administration to develop stricter standards around unpaid internships, some companies are also setting an example. The Walt Disney Company and the United Negro College Fund recently announced a new scholars program to give $1 million in aid to 50 scholars, and the Duke Energy Foundation has announced a three-year commitment of $300,000 to support internships for college students of color.

Compensation using cryptocurrency

For financially savvy employees, cryptocurrency has emerged as an attractive alternative to traditional investments like stocks and bonds, especially amidst concerns about the global economy due to COVID-19. In addition, because of the pandemic, there are more freelancers working remotely from locations across the globe. However, these gig workers may struggle with exchange rates eating into their earnings. Bitcoin transactions are often far less expensive than other remittance services, and Bitcoin payments can easily be converted into U.S. dollars.

But there’s inherent volatility and risk in this space, and it’s not an easy concept for most people to understand—so for now, only the most forward-thinking companies offer compensation via Bitcoin. For example, Airbnb and Uber now pay their employees in cryptocurrencies, either in part or in full. And Facebook offers employees who work on the Libra project the option to be paid in the Facebook Libra cryptocurrency.

The future of compensation can be bright

Whether you’re an intern, an employee, or an executive, there are sure to be changes ahead when it comes to your compensation. It could be a change in the amount you’re paid, a change in how you earn incentives or a change in the way you’re paid—but regardless, things are moving in a positive and exciting direction. By adjusting compensation in the ways I’ve discussed, companies have a real opportunity to impact not only their own employees’ quality of life and financial stability but also broader societal concerns like those tied to ESG issues. 

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