Questions on Pay………..

Few leaders remember the last time (the eighties) we had inflation this high and fewer still when it was coupled with a talent shortage. In addition, this time around we have potential recessionary trends on the horizon. Here are some thoughts on how to respond.

Traditional wisdom states that pay moves in response to the supply of labor rather than price inflation; the cost of goods and services. Experts point to times in history when pay increased by more or less than the rate of inflation. We are currently in a period of both high price inflation and a tight labor market for the first time since the seventies.

Employers already struggling to engage a workforce whose patience with efforts to fix the workplace is running out, are now additionally faced with higher pay expectations. In contradiction with the foregoing wisdom, creating an immediate threat to the availability of labor due to the abundance of alternative opportunities in the market.

There is no consensus on how long high inflation will last or whether this economy will be replaced with a recession. While pay is not the sole arbiter of whether employees stay or go it is likely not the moment to risk it becoming one. What is the value of an employee who sustained the organization through COVID, the potential supply of alternative candidates, and the cost of remote onboarding?

Pre the pandemic industry spent an excessive amount of time and money on engagement, trying to get people to do more for the same. Well, it worked but as the pandemic shuffles into its third-year employees await a more certain work environment and want to be compensated for the (new) work and hours they are contributing.

Remote and hybrid working is here to stay and employees have re-evaluated how much time they are prepared to spend commuting, working overtime, and working low-reward jobs. Here is a list of employer considerations to assist:

• The Pandemic caused a change in the content of jobs and how work is accomplished. Ensure job grades reflect any new content and are appropriately positioned in the hierarchy.
• Increasing base salaries in line with inflation will increase inflation.
• Consider cost increases experienced by employees that are not tracked by CPI e.g. product and service shrinkage, increases in expected tipping, etc.
• A reduction in inflation does not mean prices go down, and unlike inflation, pay never goes down.
• Employees may now have a choice where they live. Defining the region that anchors pay is important and reviewing the Total Reward philosophy generally.
• Identify the jobs most important to the business and the challenges in attracting and retaining candidates for them. Effective pay segmentation improves the ROI from a scarce payroll budget.
• The objective is to provide the organization with a recruitment advantage and stem attrition. Do not permanently build into payroll, costs that you may only be able to recoup through layoffs.
• In the 1970s short and long-term variable pay was less common and may be a better way to address the unique current labor market.
• When talent is tight, pay alone will not attract and retain employees, but it can make an important difference when cultures are in recovery. Develop a retention strategy equivalent to that for customers and ensure that employee needs are addressed in retention programs.
• Educate and communicate to employees the economic facts, about labor markets, and the organization’s policies.

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