Compensation management during a crisis

Managing UK inflation on fixed staff budgets

The cost of living has risen dramatically in recent months. Money is becoming worth less and less, leaving many employees with hardly anything left over from their net wages. However, companies themselves are also struggling with higher costs. During such a crisis, HR managers must intervene by adapting their compensation management. Discover how to ease the burden on your employees without exceeding your specified budget.

How is the current crisis affecting salaries?

Employees are having to cut back in lots of areas these days. Many people despair as they see what remains after they’ve paid their car, heating and shopping bills.

• The primary cause of high inflation is soaring energy prices
• The cost of fuel and food is also rising
• The coronavirus crisis and the war in Ukraine are the main factors driving the price increases.

However, the coronavirus crisis had already left its mark on payslips. Bonuses were cut, salary increases suspended and some salaries were even reduced. It’s understandable, therefore, when employees in such a situation demand inflation compensation and new talent can no longer be attracted with previous compensation levels.

So how can salaries be structured in times of crisis when HR budgets are already fixed? A company’s compensation management should find answers to this pressing question.

What is compensation management and what is it used for?

Compensation management refers to the development and management of internal employee compensation. The aim is to design employee compensation in such a way that the company remains competitive in the (labour) market and fulfils its strategic objectives.

Compensation management should:

• Lead to the highest possible return on investment
• Attract new applicants
• Retain existing employees
• Motivate employees.

Compensation management plays a vital role, especially in the recruitment process. With regard to the cost-effectiveness of salaries, HR professionals have to weigh things up: qualified applicants cost more, but often bring greater performance and more success. What’s more, they do not require extensive onboarding, which also helps to reduce your costs.

What challenges does inflation pose for HR managers in terms of compensation management?

Many companies are reorganising their compensation management in light of this crisis. As the WTW survey conducted during the “European Spring Rewards Conference 2022” among 573 European companies shows, almost a third (31%) of employers are planning measures to ease the burden on their employees. Four out of ten employers are increasing their employees’ salaries more than they originally envisaged.

However, not every company can afford salary increases across the board. After all, costs are also rising for employers, while salary budgets are often fixed and cannot be exceeded.

HR managers face the difficult task of designing a compensation concept that is:

• Affordable for the company
• Attractive for employees and applicants
• Transparent, comprehensible and motivating for employees
• Flexible and uncomplicated to manage.

What HR managers should not do when it comes to compensation management

In times of crisis, it’s paramount that you keep a cool head. When employees are lining up at the door, it’s tempting just to pull a quick solution out the hat.

However, such knee-jerk decisions can be rather dangerous. Although the market evolves in a volatile manner, salaries should be much slower to change, as it’s not easy to remove pay increases once they’ve been given.

That’s why you shouldn’t introduce hasty measures when adjusting your compensation systems. Proceed with caution and in a strategic manner to prevent conflicting goals.

What does a sensible compensation concept look like in a crisis?

A sensible compensation concept in times of inflation keeps the financial and strategic perspective in mind. Long-term development goals must not be side-lined in favour of short-term relief. The following measures have been tried and tested when it comes to the conflicting interests of employees, HR policy goals and the company’s financial opportunities:

Compensate for inflation with one-off payments

Is your compensation budget clearly defined? Maybe there would still be room for some one-off payments? This can serve as a quick boost for employees in precarious situations but does not commit the company in the long term.

Offer additional benefits

Compensation is much more than just a salary. Look at compensation from a holistic perspective by including some additional benefits. For example, this may include:

• Subsidies for train tickets, relocation or nurseries
• Flexi-time
• Rules concerning overtime and extra work
• Time-in-lieu instead of wage adjustments
• Further training programmes
• Company pension plan
• Free company bicycles
• (Team) events
• Sponsored placements abroad
• An affordable lunch in the canteen.

This way, you make working in your company attractive without paying out a significant amount of money.

Link salary to goals

Immediately compensating for inflation is often simply not possible for many companies. But when that big customer actually comes along or sales figures increase – then a lot more is possible!
Link financial goals with compensation and communicate this transparently. This motivates employees and gives them a realistic outlook. It goes without saying that you should always keep your promises.

Focus on greater agility when it comes to remuneration

Don’t want to talk about money? This was once the case. The world of “new pay” proposes greater employee participation in matters relating to compensation. And it does so both when it comes to creating and applying compensation systems.

• Make processes and regulations around payments transparent
• Gather ideas and opinions, make decisions in full and put some of the pay power in the hands of employees
• Allow for a greater variety of different compensation approaches within the company
• Create space on the system side for flexible adjustments depending on the market situation.

Bottom line: How HR managers should proceed with compensation management

In the near future, employees will increasingly ask for inflation compensation. At the same time, the very applicants who will drive your company forward won’t be satisfied with static and ultimately unattractive salaries. For this reason, HR professionals should design their compensation management in a flexible manner and explore some creative, more unusual paths in the process.

With interesting benefits in kind, variable payments and motivating bonuses that are unlocked when defined targets are reached, you help to ensure your company is crisis-proof. At the same time, compensation management has a positive impact on the security and satisfaction of your workforce.

To find out how Experis can assist you in your HR strategy, get in touch.