Three ways to address pay fairness when inflation is high

With inflation rising, businesses must be prepared to address pay fairness, regardless of whether they are adjusting wages, writes Tony Guadagni, Senior Principal, HR research at Gartner.

Organisations that don’t adjust pay to match inflation are likely to face additional turnover as employees take the quickest, easiest route to higher pay in a competitive job market.

In fact, Gartner research from Q4 2021 shows Australian employees expect a 7.1 per cent increase in total compensation on average when switching employers.

Not all organisations can or will choose to adjust pay based on inflation. Still, businesses can minimise the impact of turnover by addressing employees’ pay concerns clearly and frequently.

We recommend organisations take three actions to address issues of pay fairness:

 1. Proactively address employee concerns about pay

Whether employees are being paid fairly or not, their perception of the matter influences their decision to stay or go.

Rather than waiting for questions from employees, proactively address potential concerns, especially where misconceptions exist about disparities. Help employees understand what they would make in another job or how their current pay compares to the market.

One leading organisation implemented a pay transparency pilot that shared how individual employees’ pay compared with those at other organisations, in advance of compensation conversations. The company plotted employees’ base pay, total cash compensation and total direct compensation against a competitive range for their position.

This approach helps employees understand how their compensation compares to the market and nullifies assumptions propagated by external sources.

Employees will talk about pay and inflation, whether organisations raise the issue or not. Given this, it’s wise to get out ahead of explaining the reasons pay is not increasing, such as your deferring action while you analyse longer-term trends in inflation and the job market.

2. Adapt communications over the short and long term

Communication about pay is not a one-time activity – and employees want to hear about pay regularly.

A Gartner survey found that nearly half (45 per cent) of employees want to receive communications about pay at least once a month, but only a third actually do.

This indicates that you must adapt how and what you communicate as employees’ needs change – both in the short and long term.

For the short term and after initial communications about pay and inflation, collect FAQs and update pay resources accordingly. You can source these questions yourself or lean on individual managers.

For the long term, as employees’ understanding and the business environment changes, different pay topics will take priority. Continually monitor employee concerns and update resources and training accordingly.

3. Prepare managers to clearly communicate about pay

Many managers don’t feel confident discussing pay, and yet these conversations will only get harder when they have to address inflation.

You can prepare managers for these conversations in three ways:

1. Identify employees likely to have concerns: This allows you to develop thoughtful responses and offer possible solutions, if available.
2. Teach managers how to respond with empathy: Pay is always a sensitive area, but even more so when employees feel underpaid due to inflation. Be intentional about guiding managers on how to have empathetic conversations when discussing the topic.
3. Narrow managers’ responsibility: Managers are often overwhelmed by the amount of information and topics they’re expected to cover in pay conversations. To assist, communicate to managers exactly what they do and don’t need to be prepared for.

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