Wages and benefits have been on the rise—now HR may have to consider cuts

The talent wars of the past year and a half have played out like a reality-competition show. Employers approach candidates fully peacocked, flashing better wages and benefits, all while trying to convince their current employees to stick around.

While over 4 million workers quit their jobs every month from May 2021 to April 2022, perhaps in pursuit of better wages and benefits, current economic uncertainty could be a big blow to job-seekers and employees alike. According to compensation experts and economists, C-suite executives should aim to cut expenses without cutting key talent or salaries.

By the numbers. According to the Bureau of Labor Statistics (BLS), compensation for civilian workers rose by 5.1% as of June 2022, compared to June 2021. Following the release, Nick Bunker, an Indeed economist, told Forbes, “Competition for workers remains fierce as employers have to keep bidding up wages for new hires.” While wage increases are largely lagging behind inflation, job candidates and employees have come to expect expanded benefits and perks like free in-office lunch or a private Lizzo concert.

The latest numbers from the BLS indicate that the hot job-market lost some steam in June. The number of open jobs now stands at 10.7 million, down over 600,000 from the previous month, though layoff figures remained stable. Despite conflicting views on whether the country is in a recession, some large employers including Goldman Sachs, Microsoft, and Meta have thrown cold water on ambitious hiring plans.

A 9.1% inflation rate has businesses stressed out about the economy, and a recent poll from staffing company Insight Global found that 78% of US workers are fearful of losing their job amid recession rumors. Bert Bean, Insight Global’s CEO told CNBC, “Hiring managers, employees, and job seekers alike are all sort of holding our breath, waiting for the bottom to drop out and hoping [a recession] doesn’t happen.”

The HR factor. As businesses look to cut costs, some may have to go beyond hiring freezes, according to Kyle Holm, VP of total rewards advisory at HR platform Sequoia. Salaries and healthcare are among employers’ largest expenses, he told HR Brew, suggesting that those who still need to hire opt to hire a more junior candidate instead of reducing the salary for the rolen. “A layoff, or certainly reducing salary, is not something you do unless you absolutely felt like the business was not going to survive otherwise.”

He noted that “softer” benefits, including home-office reimbursements, will likely be the first to go. “We might go from catered lunch, to snacks, to…just the water cooler at this point,” he explained. “In the remote environment, there’s a number of those items that have been added to the overall total rewards picture that we might start to see go away.”

Looking ahead. Holm predicts employers will have an easier time competing for talent and see a “leveling off” of salaries in the months ahead. The challenge, he said, will be “having to explain to their employees that the cost of labor isn’t necessarily going up [at] a rate that’s going to keep…up with inflation.”—KP

Do you work in HR or have information about your HR department we should know? Email [email protected] or DM @Kris10Parisi on Twitter. For completely confidential conversations, ask Kristen for her number on Signal.