This article was first published by ProPricer

In March of 2020, the Coronavirus (COVID-19) pandemic plagued the world. Many businesses in the U.S. shut down or had their employees work from home, which drastically changed the landscape for how work was performed. According to a CNBC report, most employees are quitting their jobs for higher compensation. Compensatory factors driving employees to look for work include: “health benefits, job security, flexible work arrangements and retirement benefits,” according to the report.

Several key factors for employers to attract the right workforce are more flexibility on teleworking for employees, and competitive compensation plans for recruiting and retaining top talent. Federal agencies are more frequently including FAR 52.222-46 (Evaluation of Compensation for Professional Employees) in solicitations to ensure professional employees are compensated fairly. The government is looking to make sure that the contractor will “offer an uninterrupted high-quality work. The professional compensation proposed will be considered in terms of its impact upon recruiting and retention, its realism, and its consistency with a total plan for compensation. Supporting information will include data, such as recognized national and regional compensation surveys and studies of professional, public and private organizations, used in establishing the total compensation structure,” according to the provision.

One of the issues that organizations face is finding the right talent while maintaining a competitive edge when putting together proposals to win new work. Employees are looking for a workplace where they feel valued, have resources to be able to do their job, have a healthy work-life balance, and are provided access to growth opportunities. The current employment environment is employee-driven where employees are more inclined to find different work if they feel their needs are not being met in their current environment.

Design compensation plans to attract talent

In today’s environment, a compensation plan needs to not only meet the needs of employees, but it will also need to demonstrate adequate handling given the current environment. It should address base pay, benefits, and incentive compensation.   

• Salary surveys: Remote work allows employers to attract employees from areas outside of the company’s location, which means that a total compensation package must be competitive with employers nationwide. A market pricing study can aid in determining how salaries compare to those in the market. Salary survey tools or professional service companies that specialize in different locations can aid in matching job positions with the industry to provide a basis for base salary plus bonus costs. Choosing salary surveys that represent the market is crucial in evaluating the competitiveness of pay.
• Benefits value studies: Studies are also available to evaluate the value of the benefits offered to employees. Like salary surveys, a benefits value study compares an organization’s benefits to the benefits offered by benchmark entities. Many employees are looking for benefits beyond standard insurance, paid time off, and retirement plans. With the increasing prevalence of employees working from home, they are looking for reimbursement for common office expenses such as monitors, office supplies, and high-speed internet. Another popular benefit is student loan assistance. The CARES Act of 2020 has offered some student loan assistance through suspension of loan payments, however, many workers are looking for some form of continued assistance with reducing their loan balances. A benefits value study can help to also assess value from the employee’s perspective and include employee contributions.  
• Incentives: Incentive compensation or bonuses can relate to a wide variety of areas, such as new hire sign-on bonuses, retention bonuses, and merit increases. Referral bonuses are also being used to help companies acquire talent and reward employees. Often incentive compensation and flexible pay programs are tied to company performance. Performance goals and rewards should be defined and documented so that it is clear to employees what criteria must be met to receive a bonus. Bonus programs are beneficial because they help to increase employee performance and retention. In general, employees that feel valued are more productive employees.

Impact on business

Providing additional incentive compensation to employees to retain top talent can be an overall positive impact to an organization’s turnover as well as profits. Organizations need to think about the impact that some of these additional costs may have on the indirect rates and, in turn, on the estimates provided when putting a proposal together to win new work. 

Organizations should review their business system policies and procedures, and make updates accordingly to account for the changes that have been made due to increased benefits for employees to support a telework environment. Expenses for occupancy and IT related costs shift from those that support infrastructure at a commercial office building to the dwelling that employees occupy and, in turn, could affect the indirect rate used to calculate total cost when putting together a proposal. 

An example of what this might look like is when an organization has an IT service center that is allocated on the base of headcount to overhead and G&A. Let’s assume there are three IT staff to support the organization. With the change in telework, the IT staff has now doubled to account for the change in IT infrastructure to support VPN/Firewall/increased security measures to support remote work. Updates to policies and procedures also need to be coupled with an increase in IT security training. These costs will impact the pool costs of an IT service center, and the amount that is allocated to the overhead or G&A rates they support, which could result in an increase in the indirect rates applied. 

Completing impact analyses as done in the example above to account for additional benefits given to employees is recommended for an organization to understand how the increased inflation costs of working remotely, and costs for retaining talent, have affected the organization. 

Summary

As employers adjust to a new style of work with remote work and unconventional employee benefits, one thing remains the same: The government continues to procure a large amount of goods and services.  President Biden released a nearly $6 trillion federal budget proposal for FY 2023.  As of July 15, 2022, over $360 billion in contracts were awarded in FY 2022, with 80% of the awards being large business dollars, leaving approximately $73 billion in small business dollars. Contractors should be prepared to go beyond acquisition regulations to help ensure they attract and retain the best work force possible with desireable compensation plans, flexible work programs, and training. A strategically designed compensation plan will help employers maintain the appropriate workforce to successfully perform on government contracts.

Contact

Theresa Gonzalez, Manager, Government Contracting, Global Consulting Solutions, CohnReznick

703.744.6725

Caitlin Lewis, CPA, Manager, Government Contracting, CohnReznick

858.300.3428