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How Inflation is Affecting Organizations and How to Handle It

How Inflation is Affecting Organizations and How to Handle It

As a result of the global pandemic, the last two years have completely changed the workplace as we once knew it. Many organizations are facing the challenge of increased cost of goods and services, resulting in inevitable product and service price increases. Simultaneously, organizations are trying to combat a competitive job market with more frequent compensation increases and more creative benefits packages to recruit and retain employees. The common thread of these challenges organizations are facing? Inflation. 

With a lot of buzz surrounding inflation in the news and in workplaces, it’s fair for HR teams to expect an increase in questions regarding the matter. Inflation can be complicated and it can affect each organization differently, so preparing for these conversations is wise. Read on for some tips on tackling inflation conversations.


What is Inflation?

Inflation is the rapid increase of prices of goods and services over a given period of time.. As our society has slowly reopened after the pandemic, supply chains have felt the brunt of labor shortages mixed with high demand for goods, resulting in price increases. According to the Department of Labor Bureau of Labor Statistics, inflation increased 8.5% at the end of March compared to the year prior. When inflation begins to rise, many challenges come hand in hand.


How Inflation is Affecting Organizations

Given the circumstances, it’s becoming increasingly rare for an organization to walk away completely unscathed by rising inflation, no matter the industry. If your organization budgets and goal plans yearly, it may be wise to plan for flexibility to adjust. Here are a few ways inflation affects organizations and how to prepare for them. 

  • With a rise in inflation, comes a rise in salary adjustments requests. This is because inflation leads to a more expensive cost of living, leaving less in an employee’s paycheck. In fact, compensation has become the main driver of whether an employee stays or leaves an organization. According to a State of Work in America Survey conducted by Grant Thorton, 37% of respondents left their employer for higher pay. Of those left, 40% stated they received a salary increase of 10% or more. It’s wise for leadership teams to plan for salary adjustment requests proactively by forecasting a salary budget and coming to a consensus on how raises are given out. Some organizations may establish a certain percentage raise that an employee can earn periodically. Others may create a pay levels document roadmapping how to earn raises and tying that to an employee’s skill, job scope and work experience. 
  • If your budget is already set for salary increases, your organization may not have room to give employees additional compensation on top of that. Revisiting your benefit offerings is a good alternative to increase employee satisfaction. In fact, robust benefits packages are becoming a driving force in recruiting and retaining top talent with 33% of respondents stating they declined an offer because the benefits did not meet their expectations. Getting creative with benefit offerings can lead to happier employees, and potentially cost less than a salary raise. 
  • Following more robust benefits, your organization may see an influx of remote work requests due to inflation and commuter costs. In response, organizations can get creative with ways to mitigate or offset commuter costs. This can be done in the form of transportation stipends or other pre-tax commuter benefits.
  • Organizations should also be cognizant of pay compression as starting compensation and raises are at a high due to the competitive job market. Pay compression can leave veteran employees feeling undervalued, often resulting in resignation. According to a survey conducted by Robert Half, 56% of organizations have experienced pay compression in the last 12 months. When budgeting for new hires to expand your company, keep veteran employees in mind. 


Tips on How to Handle Inflation Conversations

While inflation may be out of your organization’s control, the conversations around the repercussions of it can be difficult to tackle. 

  • Leadership teams must be on the same page when tackling hard conversations with employees. Come prepared for these conversations, knowing about the organization’s policies and any resources to give to the employee. 
  • Staying on top of industry trends comes with a lot of research. To ensure your policies remain fresh and fair, be sure to research what other organizations are doing in the industry. Research ensures your organization stays competitive, but it will show your employees that the organization has their best interest in mind. 
  • Having conversations around compensation, special requests, or benefits are never fun conversations to have. It’s critical to keep this in mind and be sensitive to employees’ requests. While inflation is problematic for organizations, it is equally hard on employees. 
  • It’s often unrealistic for an organization to be able to give every employee exactly what they ask. However, coming into these conversations open-minded and willing to work together on a solution will benefit both parties. If you can’t give an employee exactly what they want, your organization may be able to offer something else to the employee to satisfy them in the meantime. 


Additional Resources

You can stay informed, educated, and up-to-date with important HR topics using BerniePortal’s comprehensive resources:

  • BerniePortal Blog—a one-stop-shop for HR industry news
  • HR Glossary—featuring the most common HR terms, acronyms, and compliance
  • HR Guides—essential pillars, covering an extensive list of comprehensive HR topics
  • BernieU—free online HR courses, approved for SHRM and HRCI recertification credit
  • HR Party of One—our popular YouTube series and podcast, covering emerging HR trends and enduring HR topics

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