Employees feel the effects of inflation when they pay more for everyday essentials, and most look to their employer to at least match, if not exceed, the rate of inflation. Failing to boost employee compensation accordingly could mean losing some of your current employees, who would be tough (and expensive) to replace in an already tight labor market.
Visit a gas pump, supermarket, car dealership or your favorite restaurant, and you're bound to see the same thing: higher prices. While rising prices impact everyone, employers are in a unique position, as they are simultaneously dealing with the effects of inflation and a candidate-driven talent landscape.
While offering higher salaries and handing out bonuses is the most obvious response, it isn't always practical — or possible. So how should employers address worries around inflation to support workers? We spoke to Kiran Contractor, Director of Talent Acquisition at ADP, to get some advice that leaders can start implementing today.
How inflation complicates employee pay
According to the latest data from the Bureau of Labor Statistics, the consumer price index, which measures a wide-ranging basket of goods and services, increased 7.9% over the past year. With inflation at a 40-year high, the decreased purchasing power of the dollar is a hot topic not only for economists, but also for employees and jobseekers.
Employees feel the effects of inflation when they pay more for everyday essentials, and most look to their employer to at least match, if not exceed, the rate of inflation. For instance, if your organization budgeted for 4% pay increases and inflation is 7.5%, employees would see this as a pay cut.
Failing to boost employee compensation to match the inflation rate could mean losing your existing talent — talent that would be tough (and expensive) to replace in an already tight labor market.
"The demand for increased pay has been worrisome for a lot of organizations just because it's happening at such a rapid pace," Contractor notes. "Employers are seeing a big trend in counteroffers because candidates and employees know that they have the power to negotiate."
Seeing the effects of inflation from an employee's perspective
According to a recent Gartner survey, only 37% of organizations plan to factor inflation into their compensation budgets, and just 13% intend to increase pay for all employees due to inflation. But workers aren't necessarily driven by salary data. It's more likely a product of the impact they're feeling on their own bottom lines.
"People have their day-to-day expenses, so when things like gas prices, food or even daycare costs are up, these are increases people haven't budgeted for," Contractor says. "They're thinking of the impact inflation has had on their personal expenses when they're walking into their boss's office or a job interview and making those demands."
5 ways to support workers and address worries around inflation
At many organizations, HR leaders and CFOs, as well as accounting professionals advising small business owners, are on the front lines of the battle to manage and mitigate the effects of inflation and rising wages. Here are five ways these leaders can help support the rest of the workforce.
1. Look for other ways to relieve the financial burden
Not every business can afford across-the-board pay raises. However, there are ways to relieve employees' financial burdens that don't involve increasing salaries or bonuses. Getting creative with benefits and perks is an excellent place to start. According to a survey by Glassdoor, 80% of employees prefer additional benefits over a pay increase.
Some ideas include:
- Allowing employees to work remotely, either full-time or part-time, to help them save on gas or commuting costs.
- Paying a larger percentage of employee health insurance costs or paying to cover family members.
- Offering tuition reimbursement.
- Employee discounts on things like tutoring services, pet insurance, childcare costs, or home and auto insurance.
- Phone stipends and home internet reimbursements.
"There is an assumption that people are only fixated on pay structure, but most are also looking for compensation beyond pay Contractor explains. "There are other benefits you can offer to help relieve the financial burden, and even seemingly small perks can go a long way."
2. Proactively address employee concerns
Contractor points out that employees are usually the ones broaching conversations about compensation, but smart employers try to get ahead of potential concerns.
"Employers have to think about how they're connecting with their people," Contractor says. "The last two years have completely shifted how people think about their self-worth and what's important in their lives. People want to work for organizations that respect their values and care about their work/life balance. Organizations have to try to connect better with people and ask what's important to them."
Asking employees how inflation impacts them individually can be tricky, but simply reaching out to people can uncover some great insights into what matters to your team. Those insights can help you create a total compensation package that meets their needs.
3. Leverage available compensation data
If your organization decides to offer pay raises, how will you determine how much more you should offer? If your decisions aren't backed up by data, you could wind up giving pay bumps that don't move the needle on talent attraction or retention.
"The reality is that many companies don't do the research to understand what the market is paying," Contractor notes. "They just make assumptions that if they raise salaries by a few dollars, they'll be in line with the rest of the market. That's just not the case — you have to do your research."
With the growth in remote work, you may not be competing for talent solely with local rivals, but with organizations across the country. A compensation analysis can help you determine whether your salaries are within range nationwide, not just within your local market.
4. Incorporate salary ranges
Rather than setting a fixed salary for specific roles, consider creating a pay range, as this can motivate employees to grow within their positions. For example, if you have a specific category of employee that is currently being paid $70,000 per year, you might incorporate a pay range of $70,000 to $90,000 for that role.
"Having a range can make the position look more appealing and gives people something to look forward to during the lifecycle of their role," Contractor explains. "Even if they're not ready for a promotion, they know they have the potential to grow within their range."
5. Take calculated risks
Promoting people from within can offer a lot of benefits. For instance, you know the quality of their work and how they fit into organizational culture, and promotions encourage loyalty.
Many managers struggle to know when to promote. However, if you have valuable people you want to hold on to, Contractor recommends taking a risk rather than waiting until you're sure they're ready.
"Think about the people you have now and what you plan to do with them," Contractor says. "Don't wait to promote someone that you think is of value to your organization. Take that leap now, because valuable employees could leave if they don't feel like there is room for growth."
Even if you don't believe a particular person is 100% ready for a new role and the responsibilities that come with it, think about how you can expand their position, then coach and develop them for that next step.
"If you think they are of high potential, then show them you value them and take the risk," Contractor said. "Most likely, those high-potential employees will want to show what they can bring to the table."
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