01.06.2022 Human Ressources Trends

63% of Organizations Plan to Make Compensation Adjustments in Response to Inflation

Gartner HR compensation adjustments

Sixty-three percent of executives plan to make compensation adjustments in response to high inflation, according to a survey by Gartner, Inc. In March of 2022, Gartner surveyed 157 executives to understand how they are addressing inflation concerns.

A similar survey in April 2022 of 150 executives also showed only one in five organizations are planning for more frequent salary reviews to account for inflation or increasing cost of living expenses.

“Many organizations are willing to take a less competitive approach to compensation while they wait for the labor market to cool down,” said Tony Guadagni, senior principal in the Gartner HR practice. “Yet, these organizations will find themselves at a significant strategic and operational disadvantage if demand continues as anticipated – especially as other employers offer higher base pay salaries.”

Gartner research predicts U.S. employee annual voluntary turnover is likely to jump nearly 20% this year, from a prepandemic annual average of 31.9 million employees quitting their jobs to 37.4 million quitting in 2022.

To attract and retain employees in today’s new talent landscape, Gartner recommends organizations utilize four compensation strategies:

Increase Compensation and Benefits

Traditionally, raising base compensation and benefits have been the primary way employers attract and retain talent. While this approach allows for a quick return on investment for roles that need to be filled immediately, it can be extremely costly and temporary.

In today’s highly competitive labor market, organizations planning to compete on compensation must be open to alternatives, such as variable pay tactics. HR leaders can utilize three different levers:

  1. Provide substantial signing bonuses: Signing bonuses offer an opportunity for employers to incentivize candidates more quickly and address immediate talent gaps.
  2. Offer lucrative benefits: Providing lucrative benefits, such as tuition reimbursement or retention bonuses, can establish a lasting differentiator in the market and signals long-term commitment to employees.
  3. Decouple pay and location: As more organizations adopt hybrid and remote work, decoupling pay and location can improve an organization’s competitive position.

Pay with Time

Paying employees with time is quickly becoming a more common tactic among employers who can’t, or don’t want to, compete on compensation alone. The same March survey found 15% of organizations are experimenting with a four-day workweek or alternative work schedules, a 13% increase from 2019.

Organizations can differentiate themselves by providing employees with work schedules that offer greater work-life balance. One approach is to guarantee a maximum workload of hours for a task or role. Employers can also embrace radical flexibility, giving employees control over where, when, and how much they work.

Another alternative is to adjust compensation for hours worked – such as 80% of work for 80% of pay – with full benefits. This can provide long-term advantages and prompt manager creativity in job design.

Invest in Internal Mobility

Employees’ focus on career progression and development may be deprioritized due to attractive pay offers. To remain competitive, employers must reinvigorate those needs by increasing investments in their internal labor market. According to a Gartner survey in June 2021, only 33% of candidates who sought out a new job in the past 12 months searched internally within their organization first.

“HR leaders must accelerate internal promotions and backfill lower-level vacancies from the external labor market,” said Guadagni. “Adopting an organizational preference for internal mobility supports retention of key talent and reduces the time to fill for critical roles – lowering stressors for the rest of the organization.”

Widen Talent Pools

The pandemic has shifted many employees’ perception of their work and their workplace. For instance, an October 2021 Gartner survey of 3,515 employees revealed 65% of women report the pandemic has made them rethink the place that work should have in their lives.

To help fill critical positions, HR leaders can consider candidates from unconventional backgrounds that are seeking new career paths. Organizations should reevaluate qualified talent and predictors of long-term success, including skills adjacencies, reducing or eliminating education requirements or location requirements.

Source: Press release from Gartner