Inflation. The word seems constantly in the headlines lately, but what actually is it?
Generally, inflation is the increase in the cost of goods and services over time, usually expressed as an annual growth figure. If pay fails to keep pace with inflation, money doesn’t go as far, resulting in falling living standards – something which millions are unaccustomed to in their working lives.
The topic has been top of the agenda for many reward and HR professionals for more than a year, with ongoing high-profile strikes in the public sector keeping the salary conversation front and centre.
Every organisation should be consistent in the figures they refer to and where they get them from (e.g., the Office for National Statistics), otherwise, keeping track of rate changes to inform decision-making can become tricky.
So, what can, and should HR professionals do to help in this crisis?
The simple answer is there is no simple answer, as it depends on a variety of factors. To cut through the confusion, we’ve put together the following tips to help guide your HR strategy:
Review your salary strategy – the first factor should be reviewing your salary strategy with business leaders. What drives the salary review process: inflation, salary inflation, individual performance, company performance, market forces, all or a combination of these? The output of this will tell you whether inflation really is a factor you want to face when reviewing salaries, or whether it’s more important to pay favourably versus competitors, for example. It may be a mix of all of them but will give you clarity as to whether your salary review process is in response to inflation, salary inflation, or performance-related metrics.
Be careful about setting a precedent – if you acknowledge you need to do something this year, what will that mean for next year?Understand the budget – part of any strategic approach to salaries should be budget. What can the company afford to do and what is it willing to do? Considered alongside what’s driving salary reviews in your company, the budget will allow you to consider the scope and possibilities.
Provide options for leaders/decision makers to consider – high inflation, and the noise that comes from external and internal sources, will likely drive the desire to do something bigger than “the usual 2%”. Once you have the budget and a decision on what’s driving salaries, you should try to present a range of options to decision makers.
Variable pay is one option that many organisations are utilising as a solution, for example. Providing new opportunities to earn bonus based on positive business outcomes can be a big motivator without increasing fixed costs and means individuals need to deliver.
One-off cost-of-living payments have also made headlines, but many individuals, and indeed unions, have dismissed these as employers are recognising that employees are struggling with the cost of living but are not willing to provide a permanent salary increase. This means that in the long term, with those increased prices of goods baked in, employees’ salaries won’t stretch as far.Be flexible and solution orientated – it may be that in this environment, a one-size-fits-all approach that’s normally used is no longer fit for purpose. If a part of the organisation has lots of roles closer to the National Living Wage, a different solution may be needed to help lower-wage staff who aremore likely to be feeling the effect of inflationary pressures than those on higher salaries. The best approach in this situation is to be honest and transparent with all employees about the decision-making process.
A good understanding of your business and its people is crucial, and if that knowledge is lacking, be sure to collaborate with leaders to learn all you can about the workplace culture, morale and levels of internal communication engagement. You can then plan not only what to tell the workforce, but how and when.
What about non-salary options?
If the salary review budget is limited or you feel you need to do more, consider other potential benefits you could offer to support employees. Non-cash benefits can be a way to make employees feel listened to and valued without breaking the bank.
Employee expectations around flexible and dynamic working have increased since the Covid-19 pandemic. By enabling staff to do the school run, go to the gym at lunch, or work at home when it suits them, the business is supporting the employee experience without direct costs, as long as there is the technology to facilitate it.
In summary
No benefit or salary increase will mask a poor manager, and organisations should address where they think managers are weak. This can be learned from senior managers’ understanding of their teams as well as through employee engagement surveys.
Good HR teams will take this information and be proactive in addressing known problem areas with managers, supporting them to be the best they can be for their themselves and their teams. This can be crucial when times are tough, as an understanding manager can go a long way to making things easier.
Another important factor at a time of high inflation is open and honest communication. People often value honesty from their employer as this allows them to know where they stand and plan accordingly.
Naturally, it can take time for financial decisions to be made, so honesty about the process – and timely updates –are important, particularly in regard to staff retention. Employers that bury their heads in the sand and wait for high inflation to pass are likely to see increased dissatisfaction and employee turnover as a result.
Looking to benchmark salaries in your organisation to find out what you should be paying, or earning? Download our 2024 salary guides to compare UK average salaries and benefits.
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