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Combating Inflation with a Holistic Total Rewards Strategy

Despite the best efforts of the Federal Reserve, inflation continues to pummel the American economy.

While things are marginally better today than during the peak crisis period, we are not out of the woods yet. The truth is that nobody knows how long high inflation will persist. Businesses that are used to periods of predictable economic cycles have been left in the lurch by today’s bizarre environment of ever-rising prices, low economic growth, and devastating labor shortages.

For better or worse, employers who already spent huge sums of money on higher salaries and better benefits over the last few years will need to work just as hard to differentiate themselves from competitors in the coming years. Unfortunately enough, rising wages across the entire economy can actually play a role in making inflation worse due to a vicious cycle known as a wage-price spiral. This unfortunate reality is pushing employers to deploy creative solutions to retain employees who are uneasy about the ever-shrinking value of their take-home pay.

So how can employers of choice structure total compensation programs in a way that boosts recruitment and retention without further compounding this debilitating economic problem? The answer lies in their ability to look at employee compensation in a more holistic manner.

Consider Culture as a Retention Tool

Throughout the course of the pandemic, the collective mindset in the workforce shifted to demand more from their employers. Top talent began seeking work based on lifestyle fit and created new expectations around remote work, organizational culture and community involvement. Progressive companies got on board quickly and created flexible work arrangements, new employer brands and opportunities for employees to thrive in the new normal. Continuing the commitment to these cultural changes and investing in fostering a positive employee experience will go a long way towards retention goals.

In addition to focusing on some of these critical areas, employers should consider transparency in their pay practices as the compensation conversation continues. Some states, such as Colorado, require job posters to indicate the pay range for a position when advertising for an open role via pay transparency legislation. This type of transparency can be challenging to navigate at first but, over the long term, fosters an open, straightforward approach to a company’s compensation philosophy. Lastly, organizations should take a more thoughtful, strategic view on pay increases. Consider one-time or tiered retention bonus payments for top performers or those in critical positions for the organization.

Invest in Your Team’s Future

In a September survey of 1,000 employees by Betterment, 65% of respondents indicated that they would consider leaving their current company for an employer with a more generous 401k plan and employers are responding. This year KPMG replaced their current 401k match contribution with 6-8% of employee pay, including bonus payments, with no requirement that the employee contributes to the plan.

Relieve the Burden of High Healthcare Expenses

In considering a total rewards approach to compensation, it’s critical to evaluate how your organization is supporting employee health and wellbeing. With their buying power at an unprecedented low, employees are expecting more from their health care spending and are looking at employers to provide creative solutions to help them. Considering these issues, organizations should review their benefits affordability and how it affects members’ take-home pay.

Since the employer-paid portion of an employee’s health insurance premiums is not taxable income to employees, a dollar spent on healthcare goes further than a dollar spent as direct compensation. Another strategy would be to revisit employer HSA contributions. Median HSA contributions have remained the same since 2010 despite HSA-eligible plan deductible increases of 23-33%.

As employers continue to fight the war to attract and retain top talent, they must consider counteracting rising inflation with an agile, comprehensive total rewards strategy that is both a win for their employee population and acceptable for their bottom line.

During market downturns, preventing turnover and creating a culture of engagement is even more important. For more strategies to navigate through this era of uncertainty, read: How Employers Can Navigate Workforce Strategy Through a Recession.