Compensation trends spotlight: Shared Services and Outsourcing

COVID-19 caught the world unaware and unprepared for its catastrophic impact to businesses globally. This has had a significant impact on how people work, where they work and what they value. All industries experienced change. Some have seen growth, with a significant rise in business and market valuations, others have faced intense difficulties and dramatic falls in revenue. The Shared Services and Outsourcing sector has experienced gains amidst the uncertainty. Pre-pandemic, most projections indicated a slow down as a result of the emergence of AI and automation, especially for outsourced customer service functions. The biggest and most unexpected disruptor has changed all of that for the Shared Services and Outsourcing sector.

As organizations pivoted their business models to stay afloat, many took the step to outsource non-core functions to sustain operations. The retail sector, for instance, shifted more to e-commerce – tapping the outsourcing industry’s online retail and logistics support services.

The pandemic has actually solidified the very essence of the Shared Services and Outsourcing operating model – which is built on cost management and efficiency. It offers cost savings by leveraging the relatively cheaper labor markets available offshore, and technology-enabled systems for more convenient service delivery. The ease of implementing a distributed and flexible workforce, which has always been at the very heart of the outsourcing sector, proved critical at the peak of the pandemic and has now become the new normal for many industries. With shared services colleagues supporting back-office activities, organizations have been able to redirect more focus to core services and critical business strategies.

Based on our 2020 Compensation Surveys and market data, we observed some key trends in both the General Industry and the Shared Services and Outsourcing Industry.

Base salary movements

After a challenging 2020, many companies are approaching 2021 with caution. Across all industries, approximately a third of respondents from our latest salary budget survey implemented a pay freeze in 2020 or decided to postpone salary reviews. Interestingly, the Shared Services and Outsourcing sector has quite varied response by market, depending on the local economic impact of the pandemic and overall business sector in a specific region.

Figure 1. Organizations that took action in response to COVID-19 by country across all industries

in response to COVID-19. This is highest in India and Philippines with 44%; Malaysia and United Kingdom with 40% of organizations indicated having taken action. Next is Mexico at 39%, followed by Poland and Argentina at 37%, Brazil at 33% and finally, China at 24%.

Overall, organizations globally are optimistic that salary increase rates will bounce back to those of 2019. The Shared Services and Outsourcing Industry has been even more positive, with companies on average paying out the budgeted salary increases in 2020. Projected salary increases for 2021 also appear to be on business-as-usual mode, with the sector as a whole setting aside salary budgets that are about 0.6% up from those allocated in 2020.

Figure 2. Year-on-year salary increase trends in the Shared Services and Outsourcing industry

in terms of budgeting for lower salary increase compared to their 2020 budgets, the rest of the countries are more aggressive in their business outlook for 2021, anticipating a better business climate and forecasted for a higher salary increase budget for 2021.

Although the Shared Services and Outsourcing industry has been more resilient than other sectors, some companies still resorted to taking pay actions in an effort to manage labor costs. The most prevalent we observed was salary reduction, with 38% of organizations implementing this action (Figure 3). There are also organizations that reduced or delayed merit increases (27%) and others that are planning to do so in the near future (35%). Other pay actions were not as popular in this sector, such as adjusting bonuses (5%) or reducing bonus accruals (8%). The least popular action was to reduce compensation for directors (1%).

Figure 3. Pay-related actions in 2020

The main action taken was to do a salary reduction (38%) and reduce or delay merit increases (27%).

Industry hot jobs

Hot jobs vary significantly by industry. Figure 4 shows the highest paid roles in the Shared Services and Outsourcing industry at the outsourcing career level (O3) for major markets.

Excluding IT development and technology product development roles, which merit an entirely separate analysis and discussion, the most highly paid roles are from human resources, finance and accounting, and supply chain outsourced functions, across various countries. In India, where some of the biggest third-party outsourcers are headquartered, roles in business development and sales/account management receive the highest pay. Voice and non-voice customer care and remote technical support roles are also in the hot jobs list, as these roles often require bilingual capabilities. It is also common for employers to provide a premium pay for specific skills, such as foreign language allowance.

Bonus payout and short-term incentives

The impact of COVID-19 has been felt in most markets in terms of actual bonus payouts against target in 2020 (Figure 5). India is an exception, where actual payout for Executives (EX) exceeded target and for Managers (M2), where actual payout was on target. Several organizations are offsetting the financial impact of COVID-related disruptions by restructuring their total compensation program for executives, such as delaying goal setting for annual incentive plans.

It will be interesting to observe bonus funding throughout 2021 given that some employers had initiatives in 2020 relevant to short-term bonus programs. This year, there will be several factors to consider – persisting global market and economic forces, including the pandemic and geo-political shifts, which could potentially, have another downward effect on bonuses for some industries.

Figure 5. Target vs actual bonus payout in Shared Services and Outsourcing industry

and managers in 2020. Actual bonus payouts for executives in India exceeded the target by 10%. For the UK, payout bonuses are still very close to target.

Long-term incentives (LTI)

One of the biggest challenges for Shared Services and Outsourcing is managing workforce retention. Given the fast growth of the industry and talent mobility, it has historically suffered high attrition rates. Long-term incentive programs are one of several initiatives introduced to address this issue.

LTI eligibility in certain major markets (Figure 6), as expected, has a much higher prevalence at the executive level. However, senior professionals and managers are now also starting to follow a similar trend.

Figure 6. Long-term incentive eligibility

and most of them are executives. Poland had the most eligible executives with 66% followed by Philippines with 55%, and the UK with 50%.

The pandemic’s unprecedented impact on employee wellbeing and business performance created a continuously evolving and uncertain environment, forcing organizations to reevaluate their rewards priorities. The challenge of recruiting, retaining and engaging employees has never been greater. That, in turn, demands reliable, relevant and timely data to determine the right pay levels and mix for a workforce that spans regions and countries. Our Shared Services and Outsourcing Compensation Surveys offer timely and lasting support. Join us.

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Vangie Daquilanea

Global Product Leader, Shared Services and Outsourcing Compensation Survey

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