As a direct result of the ongoing COVID-19 pandemic, 2022 finds us facing high inflation rates. We’ve seen prices rise 7% – in everything from cars and housing, to gas, food, and furniture. It is the largest 12 – month increase in inflation that we’ve seen in 40 years. According to CNBC, “Employers had it easy over the past decade. Inflation has lingered between 1% and 2%, while pay raises have increased between 2% and 3% during the same time.” This means employers have to adjust their compensation strategy in response. Additionally, while attempting to counteract the current inflation rates, we are still facing “The Great Resignation.” 4.3 million people quit their jobs in December 2021 alone.
How much will rising inflation and the Great Resignation influence compensation this year? How can employers balance employee expectations with employer interests and fiscal sustainability? Lastly, what strategies can employers use to create meaningful compensation packages? These questions are answered in this week’s Astronology®.
Inflation and The Great Resignation – Balancing Employee Expectations and Employer Interests
Like inflation, employee expectations are at an all-time high. The COVID-19 pandemic created a shift in priorities for most people. Employees want lots of things, including higher pay, more job flexibility, and better child care. Employers are responding to these priorities by reviewing and adjusting benefit options – specifically, including or adjusting remote work features.
In order to remain competitive in a hot market and to account for inflation, Willis Towers Watson anticipates employers paying an average 3.4% raise to their employees this year. Despite this expected increase in wages, inflation is still taking a toll on an employees’ “take – home pay.”
Recognizing this, employers need to focus on a total rewards strategy when deciding to use variable compensation to reward employees. Doing so will help an organization balance employees’ needs and expectations with the organization’s interests, budget, and plans for growth. The Society for Human Resources Management (SHRM) explains in a December 2021 article, “Variable-pay incentive bonuses, which are one-time cash payouts that do not affect base pay, are projected to significantly increase compared to last year, with 1 in 4 employers saying they will have an overall bonus pool more than 10 percent higher than last year…While the current labor market is driving some increases in pay, employers are concerned about economic uncertainty and therefore are looking to other vehicles such as incentive pay to reward and retain workers in this tight labor market.”
Sounds good. But is that all? What other strategies can employers take?
Four Strategies to Consider
Along with some form of variable compensation, here are four strategies that employers can consider to create an overall compensation strategy with a focus on total rewards:
- Prioritize Hourly Pay: In recent years, we’ve seen movements to adjust the national minimum hourly wage to at least $15 per hour. We’ve also seen many states respond to this movement by adjusting their minimum wages to gradually meet this limit. Certain companies such as Costco and Target have already set their own minimum wage to meet or go beyond $15 per hour. This indicates that prioritizing and uplifting hourly pay is a popular strategy. “With unprecedented levels of churn in the labor market, wage growth at record pace, and increasing external scrutiny, now is the time to focus on hourly pay strategies,” states Lauren Mason, senior principal at Mercer’s business division.
- Take a Segmented Approach: In order to address gaps in competitiveness, consider a segmented approach. Offer higher wages to both new staff and high – performing current employees in critical business segments. Another group to consider are those whose pay levels are below market rates. Now would be a great time to consider bringing their pay rates to the proper market rate (or even slightly above). In fact, an overall review of your organization’s compensation structure can elp you identify such weak areas. Astron Solutions has 23 years of experience helping organizations identify and address such issues. Why not request more information today?
- Consider the Overall Employee Experience: Employees are burnt out and exhausted from the pandemic. As an employer or leader in employee experience now is the time to examine reasonable and impactful ways to support staff’s unmet needs. Adding resources that could help employees navigate pandemic – related burnout can be considered indirect compensation, contributing to an employee’s total rewards.
- Be Transparent in Communicating Your Pay Strategy with Employees: In addition to providing supplemental benefits to round out an employee’s total rewards, equally important is communicating the total value of their employment. Aon noted in one of their blog posts, “Communicating total rewards is important; employees can be tempted to leave their employer for very little increase in actual salary and sometimes what you find is that they don’t appreciate the wider picture of how much their benefits are truly worth.” Employees that have access to a total reward statement have a transparent view of their overall package and thus will be motivated to stay. Move beyond traditional “boring” benefit communications and find ways to share the full reward.