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Ask a Resourceful Human: What to do about inflation and cost-of-living adjustments?

In our new advice column, Erin Grau, the co-founder and COO of Charter, answers all your HR questions.
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Francis Scialabba

· 5 min read

Welcome to our regular HR advice column, Ask a Resourceful Human. Here to answer all of your burning questions is Erin Grau, the co-founder and chief operating officer at Charter, a media and services company that aims to transform the workplace. Erin has over 15 years of experience at the intersection of talent and operations in global organizations and startups, including The New York Times and Away. You can sign up for the free Charter newsletter about the future of work here.

Our very first question concerns something that’s on many workers’ minds: inflation and the cost of living. Got a question about HR? Let us know at [email protected]. (Anonymity is assured.)

Employees expect a higher cost-of-living adjustment [COLA] given the > 7% inflation rate jump, but we haven’t budgeted for that. How do I think about inflation this year and its impact on salaries?

Compensation is incredibly complicated right now, thanks not only to a 7.9% inflation-rate jump (a 40-year high), but also a long and intense nationwide quitting streak and a tight labor market.

Before I get into practical advice, it’s important to address a long-held, little-discussed issue with the way companies manage employees: They’re used to doing the minimum they need to do to hire and retain people. Before the pandemic, it kinda worked (for employers).

But these days, employees are looking for greater transparency and higher pay, and the tight labor market heightens the chances they can job-hop to get paid more elsewhere. Some 56% of US workers who quit their jobs last year say they’re now earning more money with their new employer. Organizations that rely on their workforce to compete must take note and change their approach, or they’ll be left behind.

With that in mind, I think there are two main things you can do for your employees right now: help offset the increased cost of living for your employees, and communicate with greater transparency.

It makes sense that employees expect that if their costs are going up, their paycheck is going up, too. If you are a wildly profitable company, it’s easy for you to take some of that profit and push it back to employees, maybe even increasing their salaries by 8% across the board.

For most companies, however, it’s not a viable option to increase salaries by 8% and take that additional 8% cost into the future, so those companies will need to look for opportunities to support employees through high inflation.

Consider a one-time cash bonus to account for inflation. Increase other benefits and look at what you can subsidize, like childcare and student-loan repayment. (Bonus: There may be tax benefits for your company, too!) Understand where your employees are feeling the most pain. Is it gas? Rethink expectations for commuting or provide gas cards. Is it food? Maybe a grocery-store or food-delivery gift card.

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Many organizations are adjusting their compensation policies and frameworks for remote workers and salary transparency laws right now. If this is you, you might consider introducing a second pay-rate cycle instead of a single annual raise, a suggestion that David Buckmaster, author of Fair Pay, shared with my co-founder recently. This tactic, Buckmaster shared, is common practice in Argentina, where the rate of inflation in 2021 increased more than 50% over the previous year.

You’ll also want to communicate openly with your employees. Develop a talk track that helps contextualize inflation and how your organization thinks about compensation. Address it in your next All Team meeting, send a note via email or Slack, and give managers talking points. As the saying goes, Repetition doesn’t ruin the prayer.

  • Acknowledge that yes, things are getting more expensive and share how you’re offsetting some of those costs.
  • Help employees understand inflation...Economist and author Kevin L. Matthews II told me that in the economic world, they say, “There are too many dollars chasing too few goods.” There’s a mismatch between supply and demand, and inflation reflects how much prices change year over year. Share resources, or consider bringing in a financial planner, economist, or other subject matter expert to help educate employees.
  • …and why they wouldn’t want COLA tied to inflation. Inflation last year, for example, was 1.4%, and the year before was 2.3%. Most companies have a fixed ~3% salary increase reflected in their budget annually. Over the past decade, this increase was above inflation—so employees were better off with that than a raise pegged to inflation.
  • Be transparent about your compensation philosophy and framework. I know this is easier said than done, but to build trust and a shared understanding, this is important. If your compensation framework is based on market data and internal equity, share more about benchmarking, about the feedback loops you’ve created with your recruiting team to get real-time market data from candidates, and the framework you have in place to ensure equity within the company.
  • Share your pay-for-performance philosophy. Merit increases or performance-based bonuses might cover inflation, and then some, for the highest performers.
  • Broaden the conversation from cash compensation to total rewards. Help employees understand their total compensation package, including benefits, 401ks and equity, and highlight any increased investments you’ve made year over year.

Do you have additional ideas? I’d love to hear them! Share at [email protected].

HR is challenging. HR news doesn’t have to be.

HR Brew keeps you effective in the fast-changing business environment.