3 ways employers can help employees as inflation soars
With inflation at its highest level in 40 years, many people are struggling financially with the cost of living, which is rising faster than at any point in recent history. As a result, one of the questions frequently asked by clients is “how can we support the financial wellbeing of our employees?”.
In October 2021, 3R Strategy published its Pay Forecast Report containing projected pay increases for 2022. Typically, we saw median numbers around 2.5 to 2.8%. However, most companies have revised and increased these projections in light of the surge in inflation.
How are we measuring inflation?
The measure of inflation is important here. Much in the media and news outlets reflects the Consumer Prices Index (CPI) and not the Consumer Prices Index with Housing (CPIH). CPI currently stands at 9.1%, whereas CPIH is 7.9% (Office for National Statistics, May 2022). When we think about introducing a cost of living increase, we need to look at the whole picture, which includes the cost of housing as well as food, fuel, utilities, and so on.
The extent to which businesses can help their employees is subject to affordability and varies by industry. Most employers have gone as high as they can. Even in the charity sector, we’ve seen unprecedented increases. Industries facing steep competition for talent, such as biotech and financial services, have reported much higher numbers. Rolls-Royce and PwC have both introduced offers amounting to a 9% pay increase.
Our top three recommendations
1. So, what if you can’t afford to increase everyone’s salaries by 9%? The answer is simple: give as much as you can. Since inflation varies from year to year, one way to support employees is by giving them a one-off payment rather than adjusting base salaries. This way, you can assess the need for further support and, if prices continue to rise, offer a second one-off payment the following year.
2. If you can’t afford to make a one-off payment to all employees, another option is to offer it to those on lower pay – in other words, those likely to be struggling most. We recommend making the distinction by level/band and not by salary, otherwise, you may end up with two people in the same role on either side of the cut-off point, leading to potential grievances and resentment.
3. Finally, consider spreading the cost of one-off payments across the year, rather than giving a lump sum.
The objective of a one-off payment is to support colleagues with ongoing monthly costs due to the rising cost of living.
Therefore, a monthly supplement makes more sense than a single larger sum of money, which may be seen as a bonus rather than what it is intended for. This is more sustainable from an organisational perspective as well as an employee perspective, particularly for smaller organisations, as you avoid having to spend a large amount upfront. You could even consider setting up a hardship fund or putting a third-party agreement in place via an employee discounts scheme.
In summary: do what you can
Businesses looking to support employees with the cost of living should consider one-off payments as well as what they can afford for their salary increase budgets.
If affordability is an issue, prioritise giving these one-off payments to lower-paid employees, ensuring consistency and fairness by linking it to role type.
To ensure the payments are effective and sustainable, consider spreading them across the year.
In partnership with 3R Strategy
Independent Pay & Reward Consultancy