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Performance and Bonus Reviews During COVID-19

by By Rachel Walker-Cole and Ann-Maree Chadwick

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Should Management still conduct performance reviews during COVID-19?

When considering if you should still conduct performance reviews during COVID-19, consider the following:

  • Is your performance review process fairly established (e.g. have you conducted at least two cycles)?
  • Are majority of your workforce still working?
  • Do you link bonus payments to performance reviews?

If you answered “yes” to the first two questions then consider conducting your performance reviews as planned.

If you answered “no” to either of the first questions, you may want to consider postponing your performance reviews, but ensure continued and regular feedback. Employees want feedback that is meaningful, relevant and well delivered.  Feedback that is delivered ‘in the moment’ is often more relevant and useful for employees.

What to do about performance based bonuses?

  • Give everyone the same bonus, however this could lead to negativity and high performers could lose motivation.
  • If you’re considering providing financial support for employees during times of uncertainty, you need to clearly communicate that any monetary aid is not tied to performance or considered a bonus.
  • Research conducted by the Boston Consulting Group on organisations that previously had to respond to a crisis (the 2008 recession) found that cutting back on bonuses tied to both company and individual employee performance had negative effects on both effectiveness and employee commitment during the crisis. In order to maintain employee effectiveness, it may be critical to honour a commitment to bonuses if they are a normal and expected part of your compensation system.
  • If your business no longer has the cash flow to process bonuses, you need to be transparent in communicating why the decision was made and what employees can expect in the future.

Recently, HR consultancy firm Mercer has been advising employers to consider the following actions for  their long-term incentive plans:

  • Delay setting performance goals for one to two months, when the impact on performance results becomes clearer
  • Build in discretion to adjust performance targets or award payouts
  • Provide less-stringent plan leverage, for example, set wider performance ranges around target goals such as +/- 5% percent of target performance yields target payout, "which may mitigate goal-setting challenges in volatile situations where predictions are difficult," Mercer suggested.

For long-term incentive plans specifically, Mercer suggests these steps:

  • Set goals each year, as setting annual goals is easier than setting long-term goals during times of uncertainty
  • Use relative metrics. The financial impact of the pandemic is likely to be similar for companies in the same industry, so you should calibrate them as a percentile rank against industry peers, rather than attempt to forecast internal financial metrics. "Model potential scenarios as more information becomes available," Mercer advised. "In coming months, most companies will be able to estimate the financial impact on their operations."

Crucially, organisations must plan how they will communicate changes to incentive programs and be prepared to answer questions from participating employees. Troutman Sanders, compensation attorneys, also advise that well-drafted incentive plans will allow for potential adjustments to performance goal measurement for unforeseen or unusual circumstances.

In a survey conducted in late March, Willis Towers Watson consulting firm found 85% of 775 mostly large U.S. employers said the pandemic would reduce payouts from their company's short-term incentive plan, including annual bonus programs.

Most respondents also expected the coronavirus to negatively impact their performance-based long-term incentive plan (69% of those operating one) and sales incentive plan (63% of those with an applicable plan).

Therefore, as a result of the current economic crisis, many employers are adjusting these programs, with design changes more likely to be made for short-term incentive plans (43%) than performance-based long-term incentive plans (15%) or sales incentive plans (20%).

For those organisations that reported an intent to make changes to incentive plans, most will maintain existing goals but apply discretion at the end of the performance period; have or will adjust previously approved target goals; or have or will delay goal setting until a later date.

WorldatWork, in partnership with consultancy SalesGlobe conducted a poll in April where sales compensation was the focus. The 372 responses from members and clients showed that companies are most often looking at adjusting sales compensation quotas (46%), performance measures (44%) and other plan thresholds (36%).

In a survey conducted by WorldatWork in April 2020, they asked organisations if they were moving forward with bonuses based on 2019 performance:

  • 67% had already paid or planned to pay bonuses
  • 16% said bonus payments were on hold
  • 8% were cancelling bonus payments
  • 6% previously had no plans to pay bonuses.

Despite a huge loss in revenue for many businesses, "the majority of organisations have already moved forward with or are planning to move forward with salary increases and bonus payouts for 2020, and only a handful of organisations have decided to cancel salary increases or bonus payouts," said Chris Moodhe, head of insights at WorldatWork.