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But I think it’s just explaining and being really transparent and honest with the reality of inflation, what we can afford with salaries, and then what our financial situation is for our organizations.
Welcome to The JoyPowered® Workspace Podcast, where we help HR and business leaders embrace joy in the workplace. I’m Susan White, owner of Susan Tinder White Consulting, an HR consulting practice. Joining me is my co-host JoDee Curtis, owner of Purple Ink and Powered by Purple Ink, a professional network that I am a part of.
Today’s topic was suggested by more than one of our listeners: “Compensation Strategies in Times of High Inflation.” At the time of this recording, the Labor Department reports the US annual inflation rate for the 12 months ending July 2022 was 8.5% after having been at a high of 9.1% at the end of June 2022, which actually was the highest since November 1981. I was very new to the world of full-time working in 1981 and hadn’t yet moved into HR. I thought high inflation was normal. My guess is for most of our listeners, figuring out how to lead businesses and/or create human resource strategies in a rapidly rising inflation rate environment is new and may be presenting challenges. That’s what we’re here to discuss today. JoDee and I decided to bring in an expert, though, because neither one of us feel like we’re economists or compensation strategists. Consequently, we invited our friend and compensation expert Megan Nail to help us navigate this topic. As Vice President, Consulting and Total Rewards, Megan advises clients on how to meet their organization’s goals through total rewards and compensation strategies. She builds and designs valuable compensation structures that attract, engage, and retain top talent. With over 16 years experience as a volunteer leader at the Society for Human Resource Management – SHRM – Megan has invested in building and strengthening the HR community, which I know she’s going to do with us here today. Welcome, Megan. We’re so glad that you’re here.
Thank you. I’m excited to be here.
So Megan, please help us understand. How does inflation and compensation increases work with each other? How are they related?
Yeah, maybe if it’s okay, Susan, I’ll start with how they’re different, and then come back to how they relate.
Sure, that’d be great.
So when we think about inflation, what inflation really represents are kind of changes in market goods. So think about food, fuel, housing. We see those different amounts kind of going up. And inflation is talking about that, right? Our high inflation rate, how it’s impacting those costs. Wages are really around the supply and demand of labor. So how many people do we have in the market? What do we have to pay for those different jobs to be able to recruit and attract and retain those individuals? So they’re different because they’re talking about two different things, but they are related because typically, when we see inflation go up really dramatically, we see a rise in wages, but it’s usually not as much as what inflation is.
That makes sense. How do you address employee concerns when their, what they call “real wages” are decreasing, inflation is at a higher rate than the compensation increases we can give?
In general, I think an important point to understand that helps when we’re talking with employees, and just in our own thinking, is that wages are generally much more stable than those costs of goods that we’re talking about with inflation. So when you think about wages, it’s pretty rare that we would see a wage decrease. It would take, you know, a major event. A huge recession, you know, the global pandemic, there were some, you know, maybe pay cuts for a temporary period during that. But in general, wages generally stay pretty stable unless there’s something really catastrophic or tremendous that happens. Inflation is much more volatile, right? We’ve seen huge increase really quickly in inflation. Hopefully, we’re going to see a decrease in that. And so really thinking about as inflation numbers go up and down, our wages stay a little more constant. So when we think back to the many years we had with little or no inflation, our wages kept going up during that period, generally 3% we saw salaries increasing. Now, I completely understand and can sympathize with that real wage pressure, because right now we know that inflation is outpacing what our salary increase budgets are. But I think it’s just explaining and being really transparent and honest with the reality of inflation, what we can afford with salaries, and then what our financial situation is for our organizations, because right now, most organizations can’t afford to pay an inflation size pay increase knowing that… that they would continue to have those salaries past the period when inflation will hopefully go down.
Wow, that makes sense. But boy, it is a tough conversation to have, I know.
It’s really tough. And when you’re… you’re looking at, you know, a paycheck, and then you’re going to the gas pump or the grocery store and you see the reality of what those bills are, that… it’s not an easy conversation, even if it makes sense.
Yeah. All right. So how does the compensation market rate for certain jobs tend to vary in a high inflation environment?
So what we usually see is the biggest impact or the biggest jump are going to be on those most entry level jobs. So thinking about those really entry level jobs where you drive around town and you see the signs in the fast food restaurants or at distribution centers or manufacturers showing how much those hourly rates are going up. Because of that real wage issue and that price sensitivity, for lack of a better word, they typically see the biggest jumps and are quickest to react to kind of those changes in inflation. When we get up to kind of higher salary range levels, it’s just typically a little bit slower, because things just aren’t quite as market reactionary. In this particular market, we also have the pressure of more remote work, so we also have some more geographic pressure that’s going on where maybe companies and organizations that are out of the particular geographic market are hiring people in a market and maybe paying higher rates. So that’s a little bit unique dynamic that we have in our current situation.
Wow, that makes sense. Do you have any practical tips for our listeners while they’re doing their compensation planning?
As always in compensation, being really closely tied to finance is really important. So being really up to date on what the financial situation is of your organization, again, what that reasonable budget is, and then really focusing in onto kind of two different things, not only the market and making sure that to the extent you can, you’re paying within market rates, but also performance. So if you have a pay for performance philosophy, really look at on your limited dollars, how can you best allocate those to the individuals that need it most, whether it’s, again, those entry level rates, combination of that and high performers. The other piece, I would say, is to be transparent in communication with your employees about, you know, what the situation is and what the resources that you have to work with are, again, knowing that you likely don’t have a 9 or 10% salary increase budget, being upfront and fair and sharing with them what your budget is so they can gauge kind of what their increase is and what the overall message is around that, I think, is really important. And then also committing to being flexible as the market changes. So maybe if you normally do an annual increase cycle, maybe it’s just committing to relooking at what that is six months from now, not making promises that can’t be kept, but at least giving employees some assurance that you’ll continue to look at it and reassess as conditions change is really helpful.
I think that’s really smart. Great advice. From a communication standpoint, do you think the messaging needs to come from the top, from the manager, or any other tips on communication that might help us through this stormy time?
Yeah, definitely a stormy time. I like that metaphor. I think a combination of both. So I think some messaging from leadership kind of around those general points on how they view the market, what the company or organization’s performance is, those higher level strategic messages are great to come from the top. But then giving managers those really specific talking points and maybe even some FAQs to help address some of these concerns. Compensation is so personal. It’s our livelihood. It’s how we support our families. It’s how we support ourselves. Really having that one-on-one more personal communication with the manager, I think, is very important. So arming them and equipping them with an appropriate level of detail so they can have a more personal conversation to tag on to those bigger leadership messages is typically what I see work best.
Yeah, I like that format. We like to ask all of our guests on the JoyPowered® Workspace a joy related question. So Megan, what’s one small step or change you made during your career that you think boosted your joy at work?
For me, I think it was becoming a little more focused in what I was doing. So I loved for a long time being that general HR manager, kind of having your hand in multiple different areas. Maybe it was recruiting and employee relations and some training and development. But as I progressed throughout my career, I just found for me, specializing a little bit more in compensation and total rewards brought me a lot of joy because I could really be more narrowly focused while still keeping the big picture in mind to understand the subject matter a little more deeply.
Yeah. Great. Wonderful. Thank you for that. And Megan, how can our listeners reach out to you if they’re interested in some of your consulting compensation services?
Yeah, you can reach out to me via email. Megan, M-E-G-A-N, dot Nail, N-A-I-L at NFP dot com or LinkedIn or Twitter. So I’d love to connect with you in all those different ways.
Oh, that’s great. And we’ll make sure in our show notes that we have that information listed. Megan, thank you so much. Very helpful today.
Thank you, Susan.
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Susan, in our listener question today, in a prior episode, one of our listeners wrote in saying we had discussed when we are working through a performance improvement plan, that it is important to avoid thinking this is just the path to exit the employee. The listener said it would be good to know when to start documenting and how do we take it forward when there is no improvement?
Gosh, I really love that throwback to the episode, because I have worked with a lot of clients who think, “Okay, I’m gonna get rid of that person. Now tell me how do I put them on corrective action and get this thing going?” And at that point, I’m like, whoa, your corrective action process is really about how do we correct the problem. It’s not about get rid of the person. So it’s not a one way ticket out, and it shouldn’t be. It should be a chance for the person to correct. If they don’t – and I get this listener’s question – when do you start making it more formal? When do you start the documenting? I believe that once you’ve brought an issue to an employee’s attention and given them a chance, you know, through coaching, through encouragement, through whatever, to fix it, and they don’t, and you don’t see a change in behavior, you know, the right direction, it’s time to document. And whatever your corrective action process is, if it’s, you know, formal documentation of a coaching session then written warning, some organizations have a final written warning, and then termination, you know, you do have to go that path. If at each step, you don’t see the improvement that’s needed, you know, hopefully… and I’ve seen this happen a lot of times, all it really takes is their understanding that this situation is really serious and they need to respond, and they need to respond in a positive way. And once you start to formalize it, people tend to wake up and tend to respond. So consequently, I think as soon as you’ve tried getting the person to do it, they understand that it’s important, and they don’t do it, then I think you do have to start the process.
100% agree. The only thing I might add in there, either way, whether they have improved or they haven’t improved, is to set very clear expectations on what does that mean. Right? I’ve seen those sometimes where someone says, like, “Oh, employee X has poor communication, so they need to have better communication,” right? What does that mean? What does “better”… what exactly do they want to see happen in that? Or they’re consistently late. Well, does that mean, you know, no tolerance if they’re late again, they’re out? Right? Or…
Right, is it two minutes? Is it a half hour? Or is it half a day? That’s right, it should… the specificity can be really helpful that person truly turning it around.
Right. And also for the person, their manager or supervisor, who can then go back and say, “Here’s what we talked about. Did it happen? Yes or no?” Right? It just makes it very clear.
Great advice. It’s time for in the news. Ziprecruiter.com wrote an article that appeared in the IndyStar on August 7, 2022, entitled, “Inflation Is Changing Job Search.” We’re all feeling the effects of inflation like we haven’t had for a very long time, and job seekers’ behaviors are starting to reflect that. Ziprecruiter says that 37.5% of job seekers said rising gasoline prices have made them more likely to look for remote work.
47% of said inflation has made them more likely to seek a higher paying job. Not surprising on that one.
Older workers are unretiring because of inflation. 21.5% of job seekers who were looking in June 2022 for a job said they had retired at some point previously but are now back in the job market.
Wow. Interesting. Job seekers are rejecting offers that they believe pay too little in a period of high inflation. Almost half of the job seekers who told Ziprecruiter they had at least one job offer in June said they had rejected at least one offer because they didn’t think the pay was enough.
As business leaders and HR professionals, I think the message for us is that we may be seeing more candidates, but they will continue to be selective, so we want to make sure that the offers we make are as attractive as we can make them. The candidates will see the employee value proposition.
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