June 16, 2020
Pay Ratio: Covid-19 Complications
– Liz Dunshee
With furloughs, layoffs and changes to executive & workforce pay, many companies’ 2020 pay ratio calculations are going to require some extra thought. This memo from Willis Towers Watson suggests strategies to anticipate these issues and minimize pay ratio effort. Here’s an excerpt:
Given all the changes that have occurred and may occur during 2020, companies should develop a dynamic model now, to avoid competing against other HR priorities that will fall in Q4. Changes in compensation programs that could take place during Q4 could include bringing back furloughed employees or taking further actions to reduce pay or headcount before year-end.
If a company is performing a recalculation in 2020, this analysis may influence the Determination Date it selects. For those companies still hoping to use the three-year rule using the median employee identified in 2018 or 2019, these changes during 2020 could mean they must start anew to determine a median employee for 2020.
Assuming companies intend to use the 2020 median employee in ensuing years, global pay demographic changes as a result of companies restoring stability will present complications in the Year 2 and Year 3 calculations. While companies may aspire to use the three-year rule, for many 2020 may simply not be an appropriate baseline going forward as demographics continue to change from 2020 to 2021.
The memo goes on to explain how to factor furloughs in to pay ratio calculations – based on CDI 128C.04 and Instruction 5 to Item 402(u). For even more info, check out the “Pay Ratio” Chapter in Lynn, Borges & Romanek’s “Executive Compensation Disclosure Treatise.”