Summary
“History doesn’t repeat itself, but it often rhymes,” is Mark Twain’s oft misquoted adage. Regardless of who said it, it still rings true. Especially when it comes to inflation.
History teaches us that uncontrolled inflation--manifested by increasing consumer prices-- can impact everyday workers. This is especially true of those at the lower end of the pay scale. As consumer prices increase, workers’ buying power declines.
What happens when inflation is out of control?
After World War I, Germany’s obligations to pay war reparations led to their printing tons of money to pay their debts. With the exploding supply of the German currency, the value of the German Mark on foreign markets declined, leading to hyperinflation.
As inflation rates exploded, Germans needed a wheelbarrow of money to buy a single loaf of bread.
And let’s not forget a more “recent” history, as some of us seasoned folks remember the double-digit inflation years from 1978-1982. Inflation peaked at 14.8 percent in the spring of 1980, and the misery lasted for four uncomfortable years. Inflation surged and the GDP became stagnant, thus spawning a new term: stagflation. It was caused by the central bank’s increasing the money supply, along with the supply of consumer goods being limited because of a number of often unrelated economic reasons. (Sound familiar?)
If left unchecked, inflation can persist, causing cyclical forces to drive consumer prices even higher. This then drives employee compensation higher as an adjustment for inflation, and the economy cycles into hyperinflation, or potentially something worse.
We're living through another cycle right now.
Let’s look back over the last several years, ever since the 2020 pandemic set off unprecedented disruptions to many economic processes. Who could have predicted the “perfect storm” of events that happened simultaneously to drive inflation?
As production waned, consumer demand from home-bound households began an unprecedented buildup, potentially exacerbated by Federal programs designed to jump-start the economy. According to the Congressional Research Office, stimulus checks were a driving force in spurring consumer spending in 2020 and early 2021. While it helped many businesses remain solvent, those consumer dollars were chasing fewer goods, driving up consumer prices on everything from food and gas to vehicles and other commodities. This created the classic recipe for inflation: low supply/high demand.
To make matters worse, accelerated baby boomer retirements combined with the great resignation — spurred labor shortages, intensifying the war for talent, and bidding up the cost of labor in products across the board.
Even as inflation on consumer goods cooled, prices on rent and home prices (combined with soaring interest rates) rose steeply -- to the point that many would-be home owners are completely priced out of the market. By all indications, sticker shock persists beyond the periods of high inflation that caused it. Essentially, right now inflation is behaving like that obnoxious ex that just won’t take a hint to move on.
Purchasing power is basically the growth or reduction in how much a consumer can buy with their money. Consumers lose purchasing power when prices go up, especially when their paychecks remain stagnant.
Just how much purchasing power have consumers lost?
According to the latest government statistics, the mean or “average” household income is $80,610, which is up a mere 5% from the 2019 average income. By comparison, the all-items CPI (consumer price index) rose 19.2% during the same period. That means the average consumer lost $10,748 in purchasing power simply because of how much inflation outpaced wage increases.
With as many as 78% of workers living paycheck to paycheck, even the relatively modest 3.2% inflation of 2024 can mean the difference between paying rent, making a loan payment, or paying for childcare.
Some employers have already responded to inflation and have offered a higher-than-usual pay raise to help boost employee retention, bolster morale, and keep those pesky talent poachers at bay. However, according to the Conference Board, for 2024, salary projections anticipate a 4.1% increase in wages. While that's an increase over the average 3% pay raises offered over the past decade, it still ignores an actual decline in overall wage increases since 2020.
Given the challenges that most employers face, providing a double-digit wage increase across the board is most likely unfeasible, not to mention unwise. However, it is crucial for companies to acknowledge the impact of inflation on their employees' purchasing power. It’s such a big deal to employees, ignoring it will likely affect your recruitment and retention efforts.
Now, the question arises: What IS an employer to do?
Fact is, many companies simply cannot budget in the increases necessary to catch up with inflation. However, that doesn’t mean they’re powerless to do anything. In fact, many creative companies are exploring alternative options to meet the immediate demand for higher wages without committing to long-term salary increases.
With so many perks and lifestyle benefits to choose from, it’s hard for HR professionals to research all potential options for short-term bonuses, let alone vet which ones would work with your company.
We have a few suggestions...
Some companies are giving a one-time student debt reduction bonus. The financial services firm Fidelity Investments is one of a growing number of employers offering to help employees pay off student loan debt, contributing up to $10,000 per employee for student loan repayment. Fidelity boasts it has helped its employees save over $38 million in student loans by limiting to total loan length and lowering the total interest owed. With the recent whiplash of federal student loan forgiveness being offered and then taken away (then offered then taken away again), employers who step up can be the hero of a generation of employees most likely to be overwhelmed by student debt.
A long time ago, someone smart decided to encourage their employees to further their education and also pay their tuition. What they found was these employees were more loyal, more productive, and more engaged. Cigna, in cooperation with Accenture and the Lumina Foundation, discovered that their tuition reimbursement plan delivered a 129% return on investment. It has also served to help them recruit some of their most high-demand positions.
The number of companies that provide financial assistance to help with forming a family has grown in the last decade. For example, 40% of U.S. companies offer fertility benefits like infertility diagnosis, treatment and medication, intrauterine insemination and IVF. In addition to that, 34% offer paid adoption leave and/or financial help with adoption costs. Others still, cover egg freezing, the procurement of donor eggs or embryos, and gestational surrogacy.
Caregivers who work full-time are especially vulnerable to dangerous levels of stress and anxiety. Roughly 60 percent of caregivers have experienced at least one "caregiving-related incident" at work, such as working reduced hours, taking a leave of absence, or being warned about poor attendance or performance as a direct result of being a caregiver. Worse still, as many as 1/3 of caregiving employees have voluntarily left a job because of their caregiving responsibilities. Caregiving bonuses usually include time off to care for an aging parent and also provide access to aging resources, like legal or medical advice. It can all go to help caregivers worry less and be more productive when they are on the clock.
Paid time off is likely the most appreciated benefit of all, and it can come in many forms. Some popular options include: paid sabbaticals, birthday PTO, summer Fridays off, a four-day workweek, or PTO for off-site volunteering, voting and more. You can give your employees a significant bonus by paying them to do something productive while they’re not at work. Not only can this have a powerful impact on your employees' focus, but on their well-being and productivity as well. Even if only a percentage of employees qualify, this can be a powerful option for many.
During the pandemic, some essential workers were temporarily paid more as “hazard pay” or “appreciation bonus.” Similarly, some businesses today will pay more for workers willing to take the less desirable shifts. For example, you’ll commonly see healthcare, warehouse and retail companies offer a shift differential on evening, overnight or holiday shifts. Other companies pay out appreciation bonuses as employees reach milestones of tenure to help reduce churn.
Many employees listen to music during their focus time, and a subscription to Spotify Premium can be an addicting benefit that will not only get used but also generate a lot of goodwill. Likewise, Headspace and Ginger are popular meditation apps that can help your employees manage stress and learn how to focus on what’s important. A free subscription can lead to greater employee mental health and stress reduction.
For larger employers that have negotiated a discounted rate for their business cell phone service, that discount can also be given to employees. Your company can choose to pay all or a portion of the employees’ monthly service, or they can simply take advantage of your corporate discount, which could add up to hundreds, if not thousands of dollars per year.
Whether you want to offer an ISO (incentive stock option) or an NQSO (non-qualified stock option), employee stock purchase plans can offer significant benefits to your employees, making them owners that invest in the future of your business, and reward them for their hard work. For companies that aren’t traded publicly, profit-sharing plans can also accomplish the same levels of employee engagement. If you’re looking for someone who administers such a plan, companies like Computershare can help advise you on the best solution for your company.
This study focuses on the state of workplace wellness and found 25 percent of employees find their personal financial issues are a distraction at work. Offering a holistic financial wellness program offers important tools like an interactive budgeting tool, student loan payoff tool, and live counselors to talk about investing, taxes, retirement planning, building a financial reserve, etc. Organizations like Enrich Financial Wellness Program offer popular interactive courses, as well as interactive tools that will help your employees worry less about their finances and more about their jobs.
Some work-related certifications are not only time-consuming but expensive. Encourage employees to earn proof of their new skills, and foster a culture where accreditation is important--enough so that you’re willing to pay for these courses as a bonus. Many employees desire and appreciate the opportunity to learn skills that will help them throughout their careers. Plus, it may soon be even more important to the employers themselves. At the 2024 Conference for the Society for Human Resources Management (SHRM), keynote speakers stressed the urgent need for upskilling and reskilling of all employees to cope with the coming changes in technology like AI and automation.
Better Investing offers a step-by-step guide for starting an investment club. By using an outside source, companies can maintain an arms-length relationship with the club, yet still offer employees a bonus or stipend that can be directed to the investment club. Employees are taught how to set up a brokerage account, establish rules and procedures, and make investment decisions using real money. Sharing investment decisions and responsibilities with a group is a great way to teach employees what they need to know to become wise, independent investors.
Employer matching programs have existed for years. Some companies match an employee’s charitable contribution 1:1, or even 2:1 or 3:1. But sometimes employees don’t have the means to make a meaningful contribution of their own to even qualify for the company match. Even though they want to give to a cause they care about, they’re just not yet in a financial position to do so. As a bonus, you can offer to donate (in their name, or as a shared contribution), to a cause an employee cares about.
Many companies recognize the value of a strong referral bonus program to recruit top talent. Structured correctly, a referral program can also have major benefits to those doing the referring. The first and most obvious benefit comes in the form of incentives and cash bonuses (which can range from a free meal to thousands of dollars, or even a free Vespa). Beyond that, employees tend to refer people that they like/get along with, and who will fit in well with existing company culture. That, plus the recognition and appreciation often felt from being able to contribute to the company, demonstrate how referral programs provide a lot of non-monetary value to employees as well, making them a true win-win.
This year, healthcare costs are expected to rise 8%, which is the highest jump in over a decade, and is more than double general inflation. Higher premiums will mean less of their earned money will make it to your employees’ bank accounts. Many companies have found success giving employees the option to select a high-deductible health plans (HDHPs) which come with much lower monthly premiums and the options to start a health savings account (HAS). Younger generations and generally healthy people who have few ongoing medical expenses favor plans like these which give them more flexibility and control over their spending. Some companies take it a step further and match employee contributions to HSAs.
If "time is money” as the old saying goes, benefits that give employees back more of their personal time can feel as beneficial as a monetary raise. Benefits like home cleaning services or meal delivery services help lift the burden of ongoing household chores and contribute to a healthy work-life balance. Help with chores may not be the first thing people think of for workplace benefits, but they can make a big difference for employees who are approaching burnout from juggling heavy work and home responsibilities.
* * * *
Keep in mind, some of these bonuses may come with tax benefits or consequences, while others may not be appropriate for your regulatory environment. Make sure you consult with your tax advisor or attorney about how best to make it work for your company.
This list of creative ways to compensate your employees surely isn’t exhaustive, so if you’ve implemented an innovative benefit, or if you’re thinking about new ways to enhance your compensation package, we want to hear about it. Leave your comments below so everyone can benefit.