As inflation puts a damper on wages, companies are laser-focused on keeping top talent

High inflation is crushing wage increases, and companies are increasingly worried about it, according to a new report.

A new survey by Salary.com, a provider of compensation market data, gauged the viewpoints of 1,173 respondents including HR managers, CEOs, CFOs, CHROs, COOs, and individual contributors with a workforce of 250 to 10,000 or more employees. About 67% are “very concerned” about inflation’s impact on compensation, according to the report.

But just 19% said their companies have a separate budget for cost-of-living adjustments. To keep top talent, 73% said their companies are now targeting 4% or more of payroll for merit increases. Last fall, the majority were targeting 3%. And about half said salary levels were adjusted to reflect the current labor market premiums that many businesses are experiencing. 

 In response to the war for talent and inflationary pressures, sign-on bonuses were implemented the most (34%). 

Health care is an industry that has heavily implemented sign-on bonuses to attract employees, nurses in particular. For example, a new report by Incredible Health, a healthcare career marketplace, analyzed its hiring data of more than 400,000 nurses. The data showed small changes to hourly rates nationally, but a 162% increase in total offers with signing bonuses, according to the report.

“Sign-ons have been used for many years to target hard to attract populations,” David Turetsky, VP of consulting at Salary.com, told me. “The good news is that they are one-time incentives and do not compound over time, like base salary with merit or other yearly increases. They are also, usually, paid back by an employee if they decide to leave the employer before a pre-determined honeymoon period.” Will they become more commonplace?  “Yes, if the current market continues to constrict and make it hard for employers to fill open slots,” he says. 

But, if they’re not implemented effectively, sign-on bonuses could potentially have some drawbacks. Employers that do not clearly define the purpose of the bonuses may find the terms of the agreement are unenforceable, according to a SHRM report.

Workers are making their concerns known. About 69% of respondents said their employees have shared their concerns about inflation and wages with their managers, HR, and leadership teams. And despite companies delivering more pay in the forms of merit and benefits, 80% of respondents don’t feel that it is helping to retain employees. 

“The feeling comes from frustration,” Turetsky says. “Inflation, which has thankfully not been on people’s minds for a very long time, is now presenting another distraction for workers, putting pressure on margin. Employees who may already be feeling pressures or instability at work and home are faced with higher costs of seemingly everything.”

I asked Turetsky if he had any recommended solutions. “Communication,” he says. “Companies need to be honest and open about how they are addressing the global competitiveness of their pay and rewards packages. They need to arm managers with a set of communications that speak to the realities of where their business is right now.  The message needs to be informative, but not disingenuous.”

Another answer is a competitive review of pay programs, Turetsky says. “Companies need to make sure they are paying fairly and are at market,” he says.

He also offered advice on what not to do. “Companies that respond with a knee-jerk reaction of giving employees a large salary increase in answer to inflation do not fix the problem, since the increases likely won’t be near 7%,” Turetsky says. “Rather, they will compound pricing pressures as these raises will increase their cost basis.”

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See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

Big deal

The effect of inflation on trends in spending is examined in a new report by Jungle Scout, a platform for e-commerce sellers. Overall, 72% of respondents said inflation has impacted how much they choose to spend. The percentage is higher for parents (81%), and lower (69%) for Millennials. About 70% of respondents are making fewer impulse purchases. And 79% of consumers are maintaining or reducing overall spending in Q1 of this year, compared to Q4 of 2021, according to the report. The survey also found the top three preferred online retailers are Amazon.com (65%), Walmart.com (34%), and Target.com (13%). The findings are based on a study of 1,000 U.S. consumers ages 18 to 75 and up.

Going deeper

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Leaderboard

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Overheard

"The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades."

—BlackRock CEO Larry Fink said in his 2022 letter to shareholders, as reported by Fortune.