Companies often proclaim, "Our people are our competitive advantage." And when things are humming along as expected, the proud statement reaffirms that things are going well. But when times get challenging, do companies' actions back up this sentiment or contest it?
Today’s economy is significantly more challenging for employers and employees alike as inflation has skyrocketed. The US Bureau of Labor Statistics reports that the Cost Price Index (CPI) increased 9.1 percent for the 12 months ending June 2022, the largest 12-month increase since November 1981.
According to a recent study, 60% of CEOs predict a recession in the next 12 to 18 months. As an HR professional, you cannot control inflation. But, knowing how inflation will likely affect your employees can help you anticipate their needs and adjust company policies to match the current economic environment.
Here are five things you can be doing now:
1. Monitor the competitive labor market
Over the past 15 years, there has been little correlation between inflation and merit budgets because employers typically rely on the cost of labor and not the cost of living to determine wages. Lower wage employees are impacted most by inflation outpacing merit increases, thereby reducing the real wage for these workers.
Employers generally determine compensation budgets based on competitive market data, not how far an employee's paycheck goes. Last fall, Mercer’s US Compensation Planning and Canada Compensation Planning pulse surveys indicated higher merit increases for 2022 even before inflation started to climb steeply. To account for current inflation and current events, employers must ensure that they have the most up-to-date salary survey data.
2. Get creative with rewards
The Pew Research Center reports that "2.5% of workers – about 4 million – switched jobs on average each month from January to March 2022. This share translates into an annual turnover of 30% of workers – nearly 50 million – if it is assumed that no workers change jobs more than once a year."
Instead of relying solely on annual/merit increases, consider using target rewards to retain key talent. Target rewards are off-cycle pay increases that HR professionals can use to help retain key talent and which can be delivered any time of year. They are quickly implemented and easily tied to an employee's need or performance. Unlike merit rewards, they are not permanent and will not draw on future budgets.
Similarly, companies are more frequently using compensation and benefit allowances as an innovative approach to providing employees with relief from rising costs. Allowances for transportation, meals, or remote work setups provide more precise pain relief for employees, which helps strengthen the employee value proposition (EVP). Using allowances creates flexibility in pay in response to this incredibly dynamic labor market and economy.
3. Increase transparency
Employees are confused. They are possibly earning more than they ever have before, yet their money doesn't go as far as it used to. Unfortunately, both of these situations can be true simultaneously. To make matters worse, headlines are still warning that we are heading for tougher times.
Employers must be open with employees about the driving factors determining compensation levels. The more employers can share the compensation philosophy, benchmark methodology, and the drivers of strategic decision-making, the more employees feel included and "part of the team. "Some employers have adopted, or are planning to adopt, a "living wage strategy", which could help protect workers from inflationary pressures.
4. Align skills with work
Work flexibility and mobility are crucial to staying responsive during times of change. With the widespread adoption of remote work, greater employee mobility, and growing international outsourcing, work doesn't look the same as it did even 5 or 10 years ago. Re-evaluating how work gets broken down into tasks, roles, and responsibilities is crucial to being an agile organization.
Employers need highly skilled employees to thrive, both now and in the future. A weak pipeline or hidden talent issues can shake your organization's foundation before anyone realizes there might be a problem. Strategic workforce planning is a systematic, disciplined process for identifying and addressing gaps between current and projected future workforce requirements. It provides a rational business basis for prioritizing, developing, and funding talent practices that support business objectives while mitigating HR practice risk.
5. Control the narrative
Employees are bombarded with sensationalized messages designed to sell media. They need to have a solid understanding of their employer and how the company will take care of, and engage with, them in any economic environment.
Finding the sweet spot between stoic silence and reactionary messages that waver can seem daunting. Yet, honesty is often still the best policy. Companies are working diligently behind the scenes to protect the company, including the employees. However, there may still be work to be done. Avoid realigning the messaging to gloss over issues as it erodes employee trust.
Stay current on the hot topics affecting HR by bookmarking iMercer.com for timely blog articles, the highest quality data available, and the most insightful reports gleaned from thousands of employers. The future is always uncertain. What is certain is that the battle for talent is far from over. The more you can do today to protect your employees and keep your competitive advantage, the better off you will be.
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