Compensation

4 Ways HR Teams Can Address Inflation

January 25, 2022
July 13, 2022
  —  
By 
Catherine Tansey
Lattice Team

Inflation is up, retention is down, and workers are hard to find. Businesses are contending with formidable challenges right now, and HR teams everywhere are looking for ways to address rising consumer costs while retaining employees and attracting new talent

Companies have weathered great volatility throughout the pandemic, but as we enter year three, businesses are facing a unique challenge: Navigating the candidate-driven market during a period of inflation. While employees have great bargaining power right now, acquiescing to  requests for higher pay isn’t always an option for companies. Read on to learn about how inflation affects employee pay — and what Human Resources can do about it. 

Inflation Complicates Employee Pay

It’s everywhere — from our social media feeds to online articles to cable news programs, everyone is talking about inflation right now. The Consumer Price Index (CPI), which is the best known indicator of inflation and tracks the cost of living over time, rose 7% in the 12 months ending in December 2021, the highest spike in 39 years. With inflation at a near 40-year high, the decreased purchasing power of the dollar — usually reserved as conversation fodder for economists and pundits — is being talked about by the masses.

Inflation creates a number of challenges, like sizable cost-of-living increases. But for businesses, one pronounced concern is how to address employee pay related to inflation — especially as their own company costs rise. 

“Inflation is now a household word again, and employees will be keenly aware of any compensation changes relative to inflation,” said Robert Bird, JD, MBA, Professor of Business Law at the School of Business at University of Connecticut.

Since the main way that people experience inflation is related to their salary’s purchasing power, the rising cost of consumer goods means employees are looking to their employer to match the rate of inflation. And so, “if a pay increase is less than the rate of inflation, employees may interpret this as an implicit pay cut by the company,” Bird pointed out.

Many companies can’t afford across-the-board pay raises to match the rate of inflation, but are also contending with the high turnover and talent scarcity of the Great Resignation. Failing to boost employee compensation may mean (more) workers walk away, adding another layer of complexity in an already tight talent market

Fortunately, a paycheck is not the only way that employees measure job satisfaction. “Any non-monetary compensation that can be provided to employees gives employees value without that value being fully subject to inflation,” Bird said. 

For HR professionals looking to address inflation while keeping employees engaged and retained, here are four ways to reward employees and boost satisfaction — that aren’t pay raises. 

4 Ways to Boost Employee Satisfaction During Times of Inflation

1. Offer more flexibility…and more autonomy.

The pandemic has cemented the expectation of flexibility from employers, but that doesn’t mean employees are getting the type of flexibility they actually want or need from their company. 

In an October 2021 Harvard Business Review article, authors Holger Reisinger and Dane Fetterer argued that employers are offering flexibility when what employees really want is autonomy. “Our data also shows that the flexibility they want is conditional upon their ability to exercise it in a way that best fits them. In other words, it’s conditional upon autonomy,” they wrote. 

Many companies adopting a hybrid workplace model have settled on the version where employees have some flexibility to work from home, but must be physically present in the office on prescribed days each week. While businesses grant some flexibility to employees with this model, the level of autonomy is low. 

Offering a model with a higher degree of autonomy — for example, the freedom to work where and when one wants, but with access to a physical office — may be an effective way to buffer salary increase expectations during inflation, while still providing employees with something they desire. 

“Anything you can do to increase flexibility and the ways employees can exercise that flexibility, from extending deadlines to offering schedule-sharing or remote work, can be powerful ways to compensate without raising pay,” said Thad Price, CEO of integrated job advertising platform Talroo

Bird echoed the value of flexibility, especially as it pertains to more equitable work-life balance. “Increased flexible scheduling, more opportunities for remote work, and making decisions cognizant of an employee’s need for work-life balance are ways to improve the employee experience that aren’t necessarily related to compensation,” he said. 

2. Invest in L&D and career pathing.

Employees feel valued by monetary compensation, but higher wages aren’t the only strategy for rewarding team members. “Education, coaching, and mentorship are incentives that are not pay-related but can be very meaningful,” said Price. 

Employees place great stock in learning and development (L&D) opportunities, as workers gain valuable skills, knowledge, and experience. Furthermore, the gesture of offering these types of L&D initiatives and programs signals the willingness of a company to invest in its people. 

“People not only value money but their position,” Bird said. “And training employees to further their career at the firm will help them feel more attached to the company.” 

Continuing education, training for specific technologies or applications, or other career-specific training are all avenues to consider. Bird added that to make the most of learning and development opportunities, companies should work to directly align the training with the company. 

“The key [with training and development] is to generate as much firm-specific human capital as possible, which will increase the ‘stickiness’ — or the attachment an employee feels to their employer,” Bird said. Firm-specific human capital, also known as institutional knowledge, is the information gained by those who know the ins and outs of a company. 

Training that’s specific to the company increases the attachment between both parties because of the mutual effort and energy expended. “These investments in learning or training opportunities tend to bind employees and employers more tightly because so much of each party's value is now in the specific relationship, and not just in the general marketplace,” Bird said.  

Companies training existing employees in new or needed skills, roles, and technologies benefit from not only having an individual to fill that role or perform those tasks, but also from the institutional knowledge that that employee already has. At the same time, the employee gains valuable education cost-free, and grows more attached to the company and their future with it in the process. 

3. Provide bonuses.

Companies may be looking for ways to avoid the permanent bump in fixed costs that comes with increasing employee base pay, but still want to provide monetary compensation to manage the impact of inflation on employees’ wallets. 

“With salaries, organizations are tied to that salary moving forward and there is an expectation that the salary will continue to increase,” Bird noted. But bonuses are a way to provide financial compensation without being locked into that salary in the future. Commonly used as part of management and executive compensation, bonuses are a form of variable pay that are often tied to individual or company performance. Since they are a one-off, lump-sum payment, bonuses are an effective way to put more money in an employee's pocket without permanently increasing payroll costs. 

During this period of high inflation, consider giving employees a retention bonus — one meant to incentivize employees to stay at the company through a set period of time. While some employees may still be eager for a salary increase, providing bonuses will help take the edge off of employee frustration with company pay practices during this period of heightened inflation.

4. Avoid passing on increased costs to employees.

Inflation not only degrades the purchasing power of employees’ dollars, but that of the company as well. “Company costs are increasing, too, and given the tight labor market, firms will have to decide whether to pass on relevant costs to their employees,” said Bird. 

Healthcare costs, for example, are largely expected to continue their upward trajectory thanks to supply chain shortages, labor shortages, inflation, and “catch-up care” — the phenomenon of individuals seeking non-emergency healthcare services again after largely putting them on hold for the past two years. Businesses can support employees through this inflationary period by keeping health insurance premiums stable for employees. 

Big four accounting firm KPMG opted to not only maintain employee healthcare costs, but decrease them. Darren Burton, Chief People Officer of KPMG US, recently told trade publication Human Resource Executive that the firm had long fielded complaints about the cost of healthcare premiums. To address inflation — and despite the expectation that healthcare costs will rise further —  KPMG decided to cut premiums by 10% without any change in coverage, HR Executive reported. In this article, Burton relayed that among the workforce, “the reaction has been tremendous.” 

Consulting firm Mercer’s 2021 National Survey of Employer-Sponsored Healthcare Plans suggests that KPMG’s actions may be a trend: The survey found that the common practice of passing off increased costs to employees, known as cost sharing, has diminished. 

“In fact, concerns about healthcare affordability for lower-wage workers, along with the need to retain and attract employees in a competitive labor market, have resulted in an unexpected reversal in some health plan cost-sharing trends,” stated a press release from Mercer about the report (the full report will be released in March 2022). “Most employers not only held off on raising deductibles and other cost-sharing provisions, but some even made changes to reduce employees’ out-of-pocket spending for health services,” the release continued. 

For businesses hoping to leverage this method as a strategy to address inflation, the key here lies in strong and consistent communication: Reiterate the company’s commitment to affordable healthcare, and communicate to employees the increased costs the company is taking on to ensure continued access to healthcare for its workforce. Without communicating the healthcare subsidy to employees, they’re likely to remain unaware of this significant way in which the company is supporting employees during today’s period of high inflation. Strategic communication from HR will maximize the impact of this benefit across the organization.


Human Resources has faced previously unfathomable challenges in the past two years: the quick pivot to remote work, the moving target of a return-to-work date, the highly charged issue of vaccine requirements in the workplace, elevated rates of employee turnover, a tight talent market, and now, high inflation — not to mention the stress of living through a pandemic. It’s true that salary increases to match the rate of inflation may not be feasible for all organizations, but with some creativity and a commitment to engage employees as fully as possible, HR can address today’s inflation while continuing to build satisfied and productive workforces.