Updated Inflation Statistics
Adding more pressure on employers to raise wages, consumer prices rose 9.1 percent year over year in June 2022, a new 41-year high, the U.S. Bureau of Labor Statistics (BLS) reported in July.
Inflation has grown sharply since late 2021.
Higher inflation means the buying power of workers' take-home pay is shrinking. Real (inflation-adjusted) average hourly earnings fell 3.6 percent, seasonally adjusted, from June 2021 to June 2022, the BLS separately reported in July.
An indication that inflation is likely to remain high was provided by the producer price index (PPI), a key leading indicator for the prices that consumers eventually pay. In July, the BLS announced that the PPI rose 11.3 percent for the 12 months ended in June, up from 10.8 percent for the 12 months ended in May.
More-Frequent Pay Raises
To counteract the deeper bite consumer prices are taking from workers' paychecks, some companies are forsaking annual pay raises and, instead, reviewing workers' pay rates more often as they compete for talent, The Wall Street Journal reported in February.
"When the market is evolving in real-time and there really isn't a leading indicator other than what you're seeing to compete and hire, you quickly have to adjust," Irma Lockridge, the chief people officer at CoorsTek Inc., a maker of industrial ceramics, told the Journal. The Golden, Colo.-based company, with 6,000 employees, has begun quarterly pay reviews, primarily to ensure it can hire and retain workers for critical and hard-to-fill manufacturing roles.
In a January survey by HR consultancy Mercer, nearly a quarter of 2,565 HR managers said they were considering additional reviews or salary increases to address inflation this year.
The size of salary budgets is also outpacing earlier expectations to address the tight labor market and inflation. Total rewards association WorldatWork's January 2022 Salary Budget Quick Poll, with responses from more than 200 compensation professionals, reported an average salary budget increase of 4 percent and a 5 percent median (outliers, or extreme values on either the high or low end, have a bigger effect on the mathematical average than on the median, or middle value). An earlier WorldatWork salary budget survey, released in August 2021, had projected 3.3 percent average and 3 percent median increases for 2022 overall salary budgets.
Hourly wages are also up sharply this year.
If employers can't raise salaries or hourly wages right now, a one-time bonus payment can show they recognize base pay isn't keeping up with inflation.
Employers are turning to other options as well, such as expanding benefits, to help retain workers.
"In many cases, employers are responding by boosting pay, enhancing health and retirement benefits, and offering more flexibility to not only find workers but also keep the ones they have from looking elsewhere," said Steve Nyce, senior economist at consultancy WTW.
Enriching Retirement Benefits
A September survey of 1,000 full-time employees by financial advisory company Betterment found that 65 percent of workers would consider leaving their job for an employer that offered a more generous 401(k) plan.
That lesson isn't lost on accounting and services firm KPMG, which starting this year replaced its 401(k) match with a contribution of 6 percent to 8 percent of employee pay, including bonuses, with no requirement that employees contribute to the plan, Business Insurance reported.
Also as of January, Facebook parent Meta is matching $1 for $1 of an employee's 401(k) contribution up to 50 percent of the annual contribution limit, according to Avier Wealth Advisors. That's increased from a prior match of 50 percent of participant contributions up to 7 percent of pay.
These firms aren't alone; 16 percent of large and midsize U.S. employers plan to raise 401(k) contributions or reinstate a contribution match this year, according to a survey of about 100 companies conducted last fall by investment-consulting firm Callan LLC.
Help with Higher Health Costs
"Health care inflation generally lags consumer price increases, given the way contracts are negotiated," explained Ron Mastrogiovanni, founder and CEO of HealthView Services, a provider of retirement health care cost data and planning tools. "As a result, elevated expenses can be expected for at least a year, and may or may not continue for a longer period."
The effect of inflation on the cost of health care and other employee benefits "is another factor that employers should keep an eye on as an area of opportunity to improve compensation packages for employees," wrote Denise Stefan, president of HR services provider Engage PEO, and Steve Scott, the firm's chief operating officer.
"There are important advantages to allocating a greater part of the investment in employee compensation to employee benefits" as a way to offset higher inflation, they advised. For instance, the employer-paid portion of health insurance premiums is not considered income taxable to employees at the state and federal levels, so a dollar spent on health care goes further than a dollar paid as direct compensation.
"Covering a larger part of the cost of health insurance, or life and disability insurance, can have an impact on productivity and help with long-term retention" by lessening workers' stress over being able to afford the cost of treatment should they or family members become sick or injured, Stefan and Scott said.
Revisit Employer HSA Contributions
In a 2021 survey by HR consultancy Mercer, the median employer health savings account (HSA) contribution was $500 for employee-only and $1,000 for family coverage among U.S. employers with 500 or more employees. Median employer HSA contributions have remained the same since 2010, Mercer reported, despite HSA-eligible plan deductible increases of 23 percent for employee-only and 33 percent for family coverage over the same period.
"In an inflationary environment, now is the time for employers to revisit the possibility of increasing their HSA contribution levels," Mercer advised. "If budgeting for an increase in employer HSA contributions for all employees is cost-prohibitive, evaluate providing additional HSA contributions for lower-paid employees (e.g., salary-banded HSA contributions)."
Related SHRM Articles:
Salary Budget Growth of 5% Most Common Increase in New Survey, SHRM Online, April 2022
Keeping Benefits Competitive Requires Vigilance—and a Strategy, SHRM Online, March 2022
Highest Pay Increases in Years Won’t Match Inflation, SHRM Online, February 2022
Related SHRM Resource:
What Benefits Can Employers Offer to Improve Employee Retention?, SHRM HR Q&A