How Can Employers Help Employees Deal With Inflation?
Table of contents
- Impact of inflation on the workforce
- How employers can help employees weather inflationary pressure
- Prepare for the future with smartPeople
Inflation is everywhere, and everyone is talking about it — from our social media feeds to online articles to cable news programs. The Consumer Price Index (CPI), the best-known indicator of inflation that tracks the cost of living over time, rose 9% in the 12 months ending in April 2022. These numbers have many economists drawing comparisons to the inflationary environment of the 1970s and early 1980s — a time dubbed “The Great Inflation.”
Unfortunately, the resulting financial stress can harm employee performance. For example, a PwC employee financial wellness survey in 2022 found 76% of employees agreed that financial stress negatively impacted their productivity at work. Moreover, the same survey reported that 76% of employees would seek employment in companies that cared more for their financial well-being.
This financial strain, combined with today’s tight job market, is placing a bigger burden than ever on employers to do everything they can to support their employees, reduce their stress, and maintain their productivity during this difficult inflationary period.
Impact of inflation on the workforce
Some employees, feeling pinched and seeking a way to relieve the pressure of inflation, may start turning an eye towards the job market and exploring their options. For this reason, employers should carefully evaluate and adequately address their employees’ pain points.
Inflation anxiety in the workforce
Inflation anxiety is an umbrella term for stress related to rapidly rising prices. In other words, price instability feeds a sense of discomfort and anxiety about the future. As prices go up, employees feel their purchasing power goes down, which often coincides with making painful decisions such as cutting back on everyday expenses or forgoing big purchases, projects, or travel plans.
Current wages have less value
Inflation has a direct impact on the value of employees’ compensation packages. Prices are increasing faster than the typical annual raise, meaning rising wages do not counteract the effects of inflation on the overall cost of living. The result is that employees’ compensation packages are losing value. This can result in employees being left behind financially, as their current wages may not be enough to cover their expenses.
Retaining talent is a challenge
As employee compensation loses value due to inflation and a higher cost of living, it can become harder for organizations to attract and retain talent. Employees may look for new jobs with higher compensation. They may also ask for more frequent salary increases or a higher overall raise than in times with little to no inflation. To be competitive in the job market, businesses will need to look at options including more competitive wages or other desirable benefits that have lower costs, such as flexible scheduling or the ability to work remotely.
How employers can help employees weather inflationary pressure
Here’s how to help employees with inflation, including strategies organizations can implement to deliver maximum value with the benefits package.
Set a clear salary increase strategy
The overall compensation package becomes even more critical with the diminished value of wages due to inflation. Maintaining other benefits, such as health insurance and retirement savings, can be a good strategy for employees when facing diminished wage value, allowing them to enjoy the same benefits even if their paycheck buys less than it used to.
Shift the focus towards being agile
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 looks different than it did even 5 or 10 years ago. Re-evaluating how work gets broken down into tasks, roles, and responsibilities is crucial to an agile organization.
Give employees more autonomy and flexibility
Amidst the current inflationary environment, one of the best ways employers can help ease the inflationary burden is by offering employees more autonomy and flexibility. Many employers are implementing flexible hybrid workplace models or even more autonomous models that allow employees to work wherever and whenever they choose in order to save money.
For example, by having the flexibility to work from home, employees can save money on commuting costs and costs associated with coming into the office (lunches, coffee, etc.).
Offer retention bonuses
As companies have to shoulder increased costs due to inflation, they may need to raise their employees’ base pay. As an alternative, employers can offer their employees cash bonuses to help them during the difficult economic environment.
One type of bonus that employers can utilize to help relieve inflationary pressure is a retention bonus. A retention bonus is contingent on the employee staying with the company for a defined period. The advantage of a retention bonus is that you not only help your employees deal with inflation but also lower your employee turnover rate.
Provide employees with financial education and planning resources
A study conducted jointly by SHRM and Morgan Stanley found that only 35% of companies offer financial planning to employees. Furthermore, only 24% of companies offer employees financial coaching or education.
What’s striking is that the same study found that 60% of employees desire help with their financial planning, and 54% would like to receive some form of financial coaching. This data suggests there is a significant missed opportunity for employers to tangibly help their employees when they need it more than ever because of inflation’s negative impact on their daily lives.
Emphasize frequent professional development opportunities
Upskilling, reskilling, and cross-skilling are common means of professional development that eventually lead to higher pay. Professional development programs for employees can take many forms, including internal mentorship programs, talks by company or industry experts, and online programs. In other words, anything to help your people learn and grow.
Professional development has benefits for both employers and employees. For example, a 2020 PwC report showed that 67% of employees given upskilling opportunities were more productive and had more confidence in organizational leaders.
During a period of inflation, professional development can also help employees feel less anxious. Spending time investing in their growth makes employees feel secure, knowing they’re building valuable skills that can serve as the backbone of their career.
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