On June 23, the Federal Reserve Chairman announced that inflation had reached a forty-year high in February, intensified by supply chain issues and increased consumer demand. Subsequently, the Consumer Price Index (CPI) was 6.4% higher in February 2022 than the prior year. Gas prices are up a soaring 48%, housing 14% and groceries 10% in the last year alone. In addition to these staggering numbers, a recent World at Work study cites that salaries had not kept pace with economic growth for most of the 2000s.
Since the pandemic triggered both mass employee movement and a tight labor market, employers were forced to deploy significant pay increases in a very short period to retain and attract top talent. Another issue compounding the problem of inflation and employee pay is that most employers pay for the cost of labor, essentially the rates needed to attract talent – not the cost of living.
Rising wages are one of the key causes of inflation. When the cost of labor increases, so does the price point for a certain product, allowing the margins to remain the same. These issues, combined with a historically tight labor market, are pushing employers to deploy creative solutions to retain employees who are combating the buying power of their take-home pay is shrinking.
So how do forward-thinking employers structure total compensation programs that both retain their best but also combat the year-over-year compounding interest issue that would arise with across the board pay increases? The answer lies in their ability to look holistically at employee compensation.
Consider Culture as a Retention Tool
Throughout the course of the pandemic, the collective mindset in the workforce shifted to demand more from their employers. Top talent began seeking work based on lifestyle fit and created new expectations around remote work, organizational culture and community involvement. Progressive companies got on board quickly and created flexible work arrangements, new employer brands and opportunities for employees to thrive in the new normal. Continuing the commitment to these cultural changes and investing in fostering a positive employee experience will go a long way towards retention goals.
In addition to focusing on some of these critical areas, employers should consider transparency in their pay practices as the compensation conversation continues. Some states, such as Colorado, require job posters to indicate the pay range for a position when advertising for an open role via pay transparency legislation. This type of transparency can be challenging to navigate at first but, over the long term, fosters an open, straightforward approach to a company’s compensation philosophy. Lastly, organizations should take a more thoughtful, strategic view on pay increases. Consider one-time or tiered retention bonus payments for top performers or those in critical positions for the organization.
Invest in Your Team’s Future
In a September survey of 1,000 employees by Betterment, 65% of respondents indicated that they would consider leaving their current company for an employer with a more generous 401k plan and employers are responding. This year KPMG replaced their current 401k match contribution with 6-8% of employee pay, including bonus payments, with no requirement that the employee contributes to the plan.
Relieve the Burden of High Healthcare Expenses
In considering a total rewards approach to compensation, it’s critical to evaluate how your organization is supporting employee health and wellbeing. With their buying power at an unprecedented low, employees are expecting more from their health care spending and are looking at employers to provide creative solutions to help them. Considering these issues, organizations should review their benefits affordability and how it affects members’ take-home pay.
Since the employer-paid portion of an employee’s health insurance premiums is not taxable income to employees, a dollar spent on healthcare goes further than a dollar spent as direct compensation. Another strategy would be to revisit employer HSA contributions. Median HSA contributions have remained the same since 2010 despite HSA-eligible plan deductible increases of 23-33%.
As employers continue to fight the war to attract and retain top talent, they must consider counteracting rising inflation with an agile, comprehensive total rewards strategy that is both a win for their employee population and acceptable for their bottom line.
Article provided by OneDigital