As inflation continues to surge, one of the biggest questions we get at ACCUR Recruiting Services is in regards to how to set salaries in a realistic range that reflects a company’s desire to attract and retain qualified candidates while at the same time staying abreast of a changing, turbulent economy.
This has been a challenging topic in our field for some time as the market for qualified executives has been extremely tight. Now, as inflation surges and more and more employees expect to see higher wages, we are even more frequently called on to discuss with our clients this important and challenging balance.
Taking Stock of the Impact of Inflation on Salary
Inflation is currently outpacing salary increases by a large margin. Why is that? Though both are driven by similar market forces and tend to move in the same direction, the numerous unique factors that determine a salary such as geographic locale, labor market supply and demand tend to be more fixed.
It’s also very difficult to lower a salary once it’s been set, leading employers to be reluctant to raise wages rapidly in response to market forces.
Approximately a year ago, Willis Towers Watson conducted a survey of 1,004 U.S. companies and that found nearly one in three respondents (32%) increased their salary increase projections from earlier in the year. Their respondents were budgeting a 3.4% increase compared with an average pay increase of 2.8% in 2021.
A Unique Economic Moment
Economists point to a unique set of factors that are driving the current economic situation:
- Economic recovery post-pandemic has been roaring to life as people return to the office and travel
- Stimulus payments combined with captive stuck-at-home consumers led to an increase in spending and a commensurate rise in inflation
- The Fed has been raising interest rates in order to tamp down inflation, stoking fears of an upcoming recession
- Workers are facing increased commuting and housing costs
- Employers facing economic headwinds are understandably reluctant to get caught holding the bag for rapid salary increases
Ways of Mitigating High Salary Expectations
Over the past few years, as the market for top talent has been extremely tight, stoking the “Great Resignation” in which workers increasingly wanting to job hop for higher paychecks. Time will tell if the market will remain as tight as it has been but for now, attracting and retaining top talent remains challenging.
And though salary is always king in negotiations with potential employees, there are other factors to consider:
In general, we find that flexibility, and especially making a position fully remote, usually affords an employer the greatest number of options in a negotiation. Workers typically really prize flexibility, and if you are willing to open up your job posting lower COL areas, you will find that you have more leeway too with salary expectations.
The Bottom Line on Salary
- In 2022, candidates are contending with a sharply rising COL, especially in terms of housing costs
- Compensation is always the biggest factor in attracting top talent to a position
- Reducing commuting costs, by offering fully remote positions, can be a significant incentive to workers
- Other non-monetary forms of compensation can be useful to making your offer most attractive
Need more help?
Crafting an attractive compensation package in a tight labor market is just one of the ways we work with clients to help them attract top talent. Need more help? Contact us.