High inflation is unwelcome for most business leaders and employees and yet we find ourselves in a perilous situation where UK inflation rose 9% year-over-year in April, the highest rate of inflation since the BeeGees were number one in the charts back in 1981. And while the consumer prices index (CPI) rate of inflation has risen to 9%, the retail prices index (RPI) measure is 11.1% which may better reflect the real impact on employees as it takes account of things such as the cost of people’s mortgages.  This heighened inflation is expected to stay high for some time yet. On June 7th the World Bank warned that “several years of above-average inflation and below-average growth now seem likely.”  But give those stress balls another big squeeze because the landscape is about to potentially get whole lot worse with analysts predicting that “stagflation” is on the cards…

What is stagflation?

Stagflation is characterised by slow economic growth and relatively high unemployment—or economic stagnation—which is at the same time accompanied by rising prices (i.e., inflation). Stagflation can be alternatively defined as a period of inflation combined with a decline in the gross domestic product.   In the UK, as well as fast inflation, economic growth ground to a halt in February and the economy contracted slightly in March 2022 and there are fears this may continue. One theory that is likely true source of our anticipated stagflation is the result of the sudden European energy crisis with the increase in the cost of energy reducing the economy’s productive capacity because of the cost of transportation and manufacturing rising, getting products to the shelves is more expensive, even as more people are likely to be laid off.  This is also coupled with the legacy impacts of the pandemic (and frantic money printing) and monetary policies of raising taxes etc to reinflate the post-pandemic coffers; and experiencing issues with recruitment and getting key workers into support roles, with post-Brexit having reduced the previous large European labour pool in the country.

So stagflation is really something employers are needing to thinking about not just for profitability, viability and customer pricing but also critical employee retention and performance.  If they don’t they run the risk of not only business damage; but also having distracted, potentially stressed and unproductive workers as a result of their own fincancial hardships, coupled with heightened risk of losing talented employees to those better-paying jobs in today’s hot jobs market.

Employer landscape

According to the Economist, the “primary task for any management team is to defend margins and cashflow, which investors favour over revenue growth when things get dicey”.  They go on to say “to create shareholder value in this environment companies must increase their cashflows in real terms. That means a combination of cutting expenses and passing cost inflation on to customers without dampening sales volumes.”   The ability to push through price increases as customers tighten their belts requires careful management.  Disposable household incomes in Britain are expected to drop 1.75 percent in 2022, so being able to maintain customer numbers whilst being able to raise prices will be a challenge.  And internal cost cutting is not going to be easy especially where elevated costs for comodities, transport and labour prevail.   It is going to be even more important therefore to maximise the returns on investment in people – that means doubling down on priority clarification and performance enablement throguh clear goal setting and regular performance check ins.  It means being rigorous in assessing which roles to hire for, and hiring more for the anniversary of someone in role than the start date.  It means on occasion, protecting margins by reducing the amount of people working.  It means being clear on career progression so that your top performers stay with you.

How can employers help employees?

Back in March we wrote about 5 key low cost ways employers could help their employees with cost of living rises which remain true today.   However good these are, if you don’t have the ability to loosen the purse strings you may still find you are losing employees to the competition who are willing and able to do so.

1. Salary increases or one-off bonuses

In February, the BoE govenor urged employers to show “moderation in pay rises” but quickly has back-tracked on his remarks, realising how much employees are struggling.   According to Gartner, round 63% of companies state they are going to adjust wages in response to inflation, with most targeting a payroll budget increase of 4% or more this year.  If you cannot weather the potential long term impact of pay increases (which also up pension costs and long term budgets) then a one-off cost of living bonus may be the way to go.  You might even do this on a gain sharing basis based on the firm hitting certain KPIs that will equally see you weather the economic pressures; or jsut simply as a one off cost of living bonus and thank you for work post-pandemic e.g. Bloomsbury publishers have offered a 6% bonus, Oxford University and Lloyds bank a £1K bonus, and Clifford Chance a £1.5K bonus to its trainee lawyers and business services staff.  Rolls Royce have increased 11,000 workers pay by 4% backdated to March, as well as £2K bonus, the first in it’s 116 year history that is paid and not linked to performance – this in real terms is like a 9% raise.

2. Allow for more remote working or condensed working

Offering more remote work or hybrid schedules may help combat the expense of commuting and subsistence as well as reduce the length of time childcare costs are incurred.  It may also enable the company to move away from expensive cities, or enable a downsize in office space, money which can be reinvested elsewhere.  Other firms are getting more creative and giving employees whose roles can only be performed onsite, the choice between a pay rise or working compacted hours over 4 days instead of 5, to help them combat travel and childcare costs.

3. Invest in other more targetted perks

Some HRO companies use reward platforms such as Reward Gateway or Perkbox to enable employees to access considerable discounts on everyday purchases such as super market shops.  These platforms can cost as little as £3 pp pm but can save hundreds if not thousands of pounds per year for employees in discounts on everyday purchases.  Further, why not provide one off gift cards for items such as groceries or petrol, as a reassuring gesture for employees that you care.  Employers might also want to target their funding towards the lower-pay/early careers jobs or parents through initiatives such as paying contributions to student loan reductions, or childcare subsidies.  You could also focus your rewards on ‘special milestones’ such as a first-time buyer bonus and additional paid leave to help people move home and settle.

4. Invest in mental health support and financial wellbeing support

Research from the Money and Mental Health Policy Institute that shows that two-thirds of employees who are struggling financially show at least one sign of poor mental health that could impact their work performance. With employees facing higher levels of financial stress and potential situations of debt, employers can play an important role in helping them to cope. Showing you care by investing in mental health support and financial wellbeing guideance may go a long way to helping avoid chronic mental illhealth challenges in your workforce. This could come in the form of an employee assistance programme (EAP) or through organisations dedicated to offering debt support.  For example, some employers are using either virtual or face-to-face seminars to help their employees understand key financial issues such as budget planning and debt management, helping staff make their pay packet go that little bit further. One-to-one guidance or financial coaching sessions could be delivered via a video call or via the telephone, which is particularly useful for those who need more support and to gain a deeper level of knowledge around their finances.

5. Listen

Employees will vote with their feet or motivation on issues they feel are poorly managed or poorly addressed by workers.  Make sure, particularly in light of the increased remote working, that you are as purposeful as possible about creating meaningful space and effort to listen to your individual employee voice.  That may be a blended approach of elected employee reps that you meet with, all hands anonymous questions, and engagement pulse surveys and frequent manager check-ins.  Be sure that there is a culture of transparency – if you simply cant afford to pay more then don’t hide away from the issue, explain to employees why but what else you can commit to in better support of their wellbeing.   If you are having to let employees go, be as transparent as you can be about why and how much you appreciate the additional efforts your remainers may have to go to.

By listening to your employees you can also find out what they value from your benefits package, and also enables you to identify where you could be getting better value out of what is already in place.

 

If you would like support with your workforce plans or benefits packages in light of the current economic climate please do reach out – we are more than happy to help.