What You Need to Know About Inflation and Compensation

Written by Heather Bussing

August 8, 2022

What You Need to Know About Inflation and Compensation

In this episode of the Get Pay Right podcast David Turetsky, VP of Consulting at joins host Kevin Plunkett to discuss how inflation affects compensation and approaches organizations can take to mitigate its impact.

Inflation is stressful for workers

As prices for basics like gas and food increase, many workers are dealing with how to pay bills, feed the kids, and commute to work on wages that aren't keeping up with inflation.

If your organization gives cost of living increases based on inflation, your budget may not be able to handle the raises people need just to stay even. This is a great time to look at how compensation works in your organization and come up with a clear articulation about what goes into what people get paid.

By reassessing your compensation philosophy and strategy, you can work toward more transparency so employees understand that you care, have done the research, and are doing the best you can. Having a clear compensation philosophy also makes it easier to know how to effectively allocate raises and offer other benefits that people may want or need that won't dent the budget. For example, do you really need people to drive to a central workplace? Saving that time and gas money can help offset some other expenses that employees are managing.

Develop a framework for compensation

Developing a framework for compensation involves understanding what goes into pay, benefits, and other incentives and getting clear on what matters, why, and how it all fits together.

This may require some expert help. But it's worth the effort because a compensation framework will guide you in understanding the issues and making decisions about how to handle a shifting economy. By the way, it's always shifting.

Develop a communications framework- transparency matters

Historically, compensation decisions were made as people were hired and then adjusted along the way. Sometimes there was an organization-wide raise, sometimes pay increases were based on performance. This ad hoc approach can leave employees wondering what the reasoning is. They have questions.

Anticipate those questions and come up with answers that people can understand. "We would like to give you more. But we are concerned about raising our prices and we have done research on the market. Our current pay structure is comparable to our competitors. We know you are stressed. So, we are giving everyone a small increase and we are piloting a 4-day per week summer work schedule.

Being able to communicate the “why” behind the “what” makes a huge difference. Have the information ready and offer resources when you announce compensation decisions.

Educate managers on compensation

Managers are usually not involved in organization-wide compensation policy and decisions. But they have the most contact and (hopefully) have the strongest relationships with their teams.

Educate managers to understand the company's compensation philosophy and the reasoning that went into compensation decisions. Create a toolkit that gives them the information and resources they need to answer employee questions about pay, both in general and specific to their teams.

Research the market

This is an ongoing process that requires accurate, comprehensive, and current data. You need to review your pay regularly for your industry, location, and roles to stay competitive, improve pay equity, and retain your best people.

Plan for the rest of the year

Pandemic-related shutdowns, supply chain issues, and global politics and inflation are making a difficult time, more difficult. Addressing inflation may cause recession. And we have a tight labor market that may endure because people are reevaluating their priorities and the role of work in their lives.

The best way around it is straight through. Gather intelligence, assess the situation, think through likely scenarios, and come up with a plan to start. Use sound business judgment, creativity, flexibility, and listen to what people need and want.

Then monitor how things are going and don't be afraid to reassess. If we have learned anything in the past few years, it's how to deal with change.

For more insights on how to handle inflation and compensation, listen here.

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about the author
Heather Bussing is a California employment lawyer and analyst in the HRTech industry. She writes regularly at and loves helping organizations prevent problems and build more human friendly workplaces. She also loves photography and posts a landscape every morning on twitter @heatherbussing.

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