With the Selic rate at 10.5%, Brazil currently has the second highest real interest rate in the world. In a scenario like this, it is crucial to find a balance that allows for the financial sustainability of companies while simultaneously enabling the retention of essential professionals for business success.
“High interest rates and inflation have significant impacts on both companies and their talent, which requires rapid action not only in defining the correct compensation strategies, but also in communicating them to employees,” says Paulo Saliby, founding partner of the consultancy SG Comp Partners, which specializes in designing compensation plans.
This is fundamental because, according to the consultant, high interest rates make access to credit for investments more expensive for companies, increasing the cost of capital for growth initiatives, innovations, and acquisitions, as well as affecting revenues and profitability due to reduced consumer spending. "Employees, in turn, are directly affected in their purchasing power, which reduces their perception of the value of the compensation received," explains Saliby.
In this context, one of the biggest challenges for Human Resources departments is communicating to talents issues related to the rewards portfolio. During these periods, changes in compensation strategies are often necessary and impact the perception of the values of the plans offered by companies. To make the best decisions, it is important that the company's environment is receptive to feedback, meaning that employees are encouraged to share opinions about their package so that concerns can be identified and inclusive solutions can be created.
“It is also important to have financial transparency, so that everyone is clearly aware of the situation and the reasons for remuneration decisions, reducing anxiety and increasing understanding. In addition, it is important that they know what the company’s vision for the future is, that is, its growth plans and remuneration practices, to maintain the team’s trust and motivation,” Saliby emphasizes.
According to the SG Comp Partners consultant, in order to have a fair and understandable compensation plan during times of economic uncertainty, the company must align compensation with business objectives, maintain employee motivation, and adapt incentives to the market reality."This ensures that the programs do not contain excessive risks and that the interests of the talents are aligned with long-term goals," believes the consultant.
In this process of adapting remuneration strategies to uncertain times, 10 main components must be considered:
1) Use shorter performance periods, such as semi-annual or quarterly, to allow for more dynamic target setting and adjustments based on changing economic conditions.
2) Make discretionary adjustments at the end of the cycle based on actual results and the company's responses to ensure fairness and alignment with performance.
3) Adopt an incentive plan that works well even in uncertain periods, avoiding very narrow triggers or unattainable performance conditions.
4) Maintain transparent communication with talent about the status of the company, the impact of economic conditions, and how incentive plans fit into the bigger picture.
5) Provide ongoing feedback and regularly monitor the organizational climate to keep employees informed and motivated, allowing for course corrections if necessary.
6) Offer retention bonuses to key talent to maintain stability and motivation during uncertain times.
7) Use data analytics to optimize compensation spending, model cost projections, and understand the correlation between pay and performance.
8) Diverting the focus exclusively from financial metrics, including other performance dimensions, connected with the company's future competitiveness.
9) Create a strong governance structure, involving risk management, finance and senior management, to oversee the design and implementation of incentive plans.
10) Incorporate accelerators linked to achieving challenging strategic objectives, such as selling new products or penetrating new markets.
“In times of instability, the engagement of key talent is even more essential to ensure innovation and good business performance, and a good remuneration strategy can be the determining factor for the company to maintain its main capital – human capital, motivated and ready to be more productive and relevant”, highlights Saliby.
