18
Jul

Flying High: Inflation and Compensation

Should high inflation mean higher pay raises?

With inflation rising to a record 8%, many employers are wondering (and employees demanding) if it might be time to give more than a standard 3% cost of living adjustment (COLA) raise to their workers. As much as a rallying cry for employees as that might be, employers don’t necessarily need to adjust compensation to match inflation.

Chances are your organization has steadily been giving a COLA raise for the last few years, if not the last decade, but inflation rates have not been matching the 3%. Were you inclined to reduce salaries to adjust for this? Most likely not. The inverse should hold true, as well. While many employers do intend to give raises above 3%, many will not match the unprecedented inflation rate of 8%, nor should they.

The truth about pay raises

Pay raises are inextricably linked to the supply and demand for workers, and while we’ve currently been experiencing a labor shortage, that may not last much longer. According to Fortune.com, analysts predict that many people who left the workforce during the pandemic and the Great Resignation may find themselves in need of employment due to the high inflation, causing a surge in the labor market and a downward pressure on pay. Likewise, many people who may have been considering retirement may instead decide to remain employed until interest levels drop again.

So what should employers do? Pledge to offer salaries that are competitive in relation to the marketplace and employees’ skills. Don’t follow the inflation train. If you need help determining current market competitive rates, contact Thompson Consulting Group. We have access to quarterly updated salary data that can help you determine your market competitiveness.