What Should We Do About Inflation?

January 15, 2022 00:18:24
What Should We Do About Inflation?
The Josh Bersin Company
What Should We Do About Inflation?
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Show Notes

In this podcast I discuss inflation. Why do we have it? How long will it be here? And most importantly of all, what does Inflation do to our wages, recruiting, and pay and benefits...
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Episode Transcript

Speaker 1 00:00:11 Hello everyone today. I want to talk about inflation and what do we do about inflation? Well, the first thing I want to discuss is the fact that this is here to stay. In fact, you know, my opinion as an analyst and to some degree through economic data is that this has been going on for a number of years. The federal government has kept interest rates very low virtually zero for far too long. The stock market is trading at two to three times. The earnings multiple that it normally trades over a long period of time. So asset prices have gone up. Housing prices have become ridiculous in the large cities. This happened before the federal government doesn't measure inflation. Well. So a lot of this data wasn't coming out in the news releases from the fed wages have been going up slowly. Now they're going up quickly, the cost of food, et cetera. Speaker 1 00:01:06 And it's been caused by many years of very low interest rates. The government buying bonds, the Trump administration, reducing the tax rate during a growth cycle of the economy, which was probably a mistake. And now floods of money being thrown into the economy because of the pandemic by the federal government. Again, and as long as the Democrats are in power, we're gonna continue to see nothing but spending. So get used to it because I think we're gonna be living through this for a while. And even though the is talking about it, they seem to be awfully nervous about raising interest rates. So it's gonna take some time to calm this down that said, what do we do about it? Well, there's a couple things about inflation that affect employers. But before I talk about employers, let me talk about the psychology of inflation. The biggest impact inflation has in your life is no, not just your cost of living and your wages, but it's your psychology because when you live in an inflationary environment and I remember it very well from the last two cycles, everything feels uncertain. Speaker 1 00:02:17 We're gonna buy a new car, but we're not sure if we can afford it. We went to the grocery store, the food seems too ridiculously expensive. We wanna buy a new house. Should we buy it now? Or should we wait? We can't wait because that prices are going up so fast. So maybe we should pay more. You go to the coffee store and you realize it's $5 for a cup of coffee. And last time you remember it was $2 and not too long before that it was $1 and you start to scratch your head and say, wow, you know, what can I rely on? And it gives you a sense of what I call shifting sand, where some of the fundamental beliefs you have about how much it's gonna cost you to live and how much it's gonna cost you to send your kids to college and what kind of a house or car or clothes you can buy, just get questioned and challenged by the economy. Speaker 1 00:03:05 So it's really a destructive force to say nothing of the dislocations in the job market and the consumer market. So I think the federal government is going to have to spend some time carefully calming buddy down and putting out a meaningful policy to increase interest rates and reduce demand. So that supply catches up and prices come back into order. Now as an employer, of course, the big problem is wages, not only wages for your current employees, but job candidates. The 7% in for that you see from the federal statistics have to do with inflation of housing, food, consumer goods, and it's kind of a Bastar of goods, but in some places, wage inflation is much higher. Hourly wages for leisure and hospitality workers have gone up 12% in the last 11 months and software engine engineers, AI, people, sales people, the wages are going up very high. Speaker 1 00:04:04 You've probably seen the articles about Facebook and Google and apple who have trillions of dollars in the bank paying engineers 300, 400, 500, $600,000 a year to steal them away from other companies. They can do that. That kind of inflation is high happening too. We've been doing some hiring in our company for research analysts, and I'm running into people who are very qualified, but are making probably two or three times as much money as we can pay them. So it's really forcing us to rethink what we do. So there's really three impacts on you as an HR function. The first is compensation. Now pay rewards is a huge and very important part in domain of HR and what we really advise you to do, and what companies are now doing is look carefully at the transparency of your pay practices, the frequency of, of reviews. You need to look at pay much more frequently. Speaker 1 00:04:59 Now you can't do it once a year. Things are changing too fast. Your criteria for performance management, because what you'll find is that the high performing people in your company will have ever higher expectation for raises. And if your performance management system is not identifying those people, well, they are more likely to leave and they will leave for money. People will leave. Money is not the number one reason people go to a job, but it is one of the reasons people leave. And you're going to have to have much better communications about pay. We've done a lot of research on pay practices, and we're actually gonna do a lot of research on pay equity this year. And one of the things we found is that amongst the many things to consider communications is important. If you, your company pays below market, you know, which virtually half the companies do or more communicate why that's true and what are the intangible benefits that you provide and assure people that you are paying attention to this, that you are putting together bonus programs and benefits programs, and that your value proposition may be more focused towards learning career mission, purpose than it is towards raw pay. Speaker 1 00:06:07 And that when people come join your company, they should just be comfortable with the fact that maybe they won't make as much money as they will at a competitor, but you have other benefits. So that's who we really important part of this. It is probably a good time to do conjoin analysis and look at what aspects of your reward system are the most highly valued by your employees. If you're throwing money into wellbeing programs or flexible work hours or new tools or free food or whatever it may be, you're gonna start wondering how much of this you can keep doing. You can do a pretty interesting analysis called conjoin analysis, and you can figure out amongst your workers, what it is they value the most without just sending them a bunch of surveys. That's another good idea. And then making sure that your pay is fair and equitable. Speaker 1 00:06:54 And a lot of you understand the dimension of pay, but look at pay by gender tenure, age, location, et cetera, and analyze that data carefully. And there's some companies that help you with that to make sure you don't have unfair disparities when people are worried about their pay because of the inflation or environment that they're living in now in the area of recruiting, there's another set of issues that we're facing. First of all, of course, you will have to make sure that your salary levels are competitive. And that means doing some good research using comp and benefit data providers or the recruiting firms and platforms to make sure that you know, what competitive pay is, let your recruiters feedback data to you about what Hey people are expecting and what kind of feedback they're getting from your value proposition and most important of all focus on your brand. Speaker 1 00:07:46 Now we're gonna be launching our big talent acquisition research in March. And what we've found from that study is of the 80 or 90 practices we looked at, which are grouped into categories, the stuff that it really seems to have the biggest impact on high performance recruiting and high performance, talent acquisition does revolve around brand. There's a lot of things about innovation and creativity and technology and data too. But is your company well known? Is your company well respected? Do people tell their peers that they like working there? Do people feel that it'll look good on their resume? Will they learn a lot? Will they meet a lot of good people? Will they work on interesting projects? Will they get a chance to develop the skills that they want to build? Those are very, very valuable things that are worth a lot of money to job candidates. Speaker 1 00:08:35 And if you're not thinking about those things enough in your recruitment communication, but in your true employment brand, meaning your, your real experience at work then pay will end up being a red herring that you will probably get forced to deal with to compensate for the fact that people are not sure why they should come or for your, your company mission, purpose sustainability, two thirds of employees under the age of 45 will not work for a company that doesn't have a sustainability or global climate change strategy companies wanna know that you're diverse and fair and inclusive. They wanna know that the products and services that develop and sell are developed in a sustainable way, and that they're for focused on solving meaningful problems. This sounds kind of funny, but it's true. Those kinds of benefits will overcome the inflationary demands people have for pay. So what do you do though? Speaker 1 00:09:25 When people just want more money and the job candidates just keep telling you to raise wages, you just gotta raise 'em. There is no substitute for having an uncom pay structure. You can get away with it to a degree if you're a great company, but you will lose people. You will lose highly ambitious people. And if you're in the hourly work business, they won't come. We've talked to a lot of companies in the last six months have told me. In fact, I've heard a lot of sort of ridiculously in strange stories of HR leaders in manual factor or distribution in logistics. And even in healthcare saying to me, well, you know, we had people that accepted the job offer, and then they don't show up for work because they got another offer over the weekend for 50 cents more per hour. And they just, we're a no-show and that's an utter waste of time for you and for them. Speaker 1 00:10:12 So you are gonna have to raise wages now, you know, let me talk about that is raising wages bad. As you'll read about in my book, that's coming out, uh, this spring, they're not bad paying people more money with a criteria and a strategy around it is a very sound investment. And here's the way I think about it. Why should you raise wages and why is this a good thing? Well, let me give you you some things to think about here. If you're having a debate with your CFO about wages and he or she is pulling back, the argument that I would make is competitive wages, respect and reflect the fact that hiring people is an investment, not an expense in every job. Every role of every company I've ever talked to. There is a benefit to hiring a slightly better trained person, a person with more commitment, a person with better learning, agility, a person with better ambition, et cetera. Speaker 1 00:11:11 And those people do tend to make more money. They tend to ask for more money. They tend to expect more money. Now at everybody's pay individually is like a market of one. We all have our salary histories. We've made a certain amount of money because of where we worked and where we live. And we have certain expectations. So some people, you just have to reflect the fact that they're highly paid because they're highly paid and that may or may not be a problem. Generally speaking, when you pay people more money, as long as it's done in a fair way, and you have a structure for it, you will get better people. They will stay longer. They will be more committed to your company and generally speak. They will add more value as a result. The ROI of financial investment in people is massively high. If you look at the productivity of a worker and I've done a lot of work on this, have some interesting charts on it. Speaker 1 00:12:04 The first three to six to nine months that somebody comes to work for you. You're probably not making any money on them. They're learning their job. They're getting to people, they're learning how the company works. They're understanding customers and what their role is. But over time in the second year and the third year and so forth, they become an accelerating asset. They appreciate in value. Everybody who works for your company and feels committed and is in the right job and has been there a while because comes more productive over time. They have better relationships. They have better understanding of the business and so forth. So if you have a drain of individuals out of your company, because you're not paying them enough, you're losing a lot of productivity. Now there's a funny strategy that Jeff Bezos has discussed publicly about the fact that he likes people to leave Amazon. Speaker 1 00:12:53 They have 60, 70, 80% turnover rate in some of their facilities. And he's been quoted in the press, at least saying, this is good for us because we wanna get new people in the company all the time. I, I don't think that's true. I, I think that's a strange phenomenon, only true in a few companies that are hyper dominant in their industries that can afford to operate that way. Most companies would, would tell me that that's really never true. So raising wages to improve retention is a very, very sound strategy. Then there's the issue of pay differentiation. Now, if you look at the tech industry, which is one of the most dynamic industries in the world, it's very common to have two people in the same of, at the same level, making very different amounts of money. It may have to do with their history. Speaker 1 00:13:39 It may have to do with their productivity and their skills and the technologies they understand it may have to do with simply the demand for their particular expertise in that it's very hard to find. And therefore you had to pay more money. I don't think that's a bad thing. As long as you have clear criteria for per performance, clear criteria for pay, you will end up with a company where people make different amounts of money based on their performance and based on their background and experiences. You obviously don't want that to be political. There are lots of performance management techniques to preventing politics from increasing the disparity in pay. I won't go through that in this podcast because we'll talk about that another time. But, but that would be a factor too. So generally speaking, at least in 2022, and probably for another couple years here, we're gonna have to get comfortable with this and get comfortable with the fact that in some cases we're not gonna get the candidate we wanted and he, or she might go work for somebody that pays the more, but we'll get the candidate that has the best fit the candidate that has the best culture match the candidate that people feel the most comfortable fitting into the team and has the right complimentary skills. Speaker 1 00:14:48 And that is really a very good way to run a company. I've had the opportunity over the years to talk to hundreds and hundreds of companies and meet with lots of CEOs and CHROs. And then of course run my own company a couple of times. And what you find is in every industry, there are some companies that pay a lot more and without mentioning any names, usually those are very difficult places to work. Those are usually companies that have hypercompetitive revenue and growth targets. There's a lot of stress and pressure on people. There's a lot of growth and there's a lot of opportunity and people do learn a lot there, but some workforce participants don't wanna work in that environment. There's one particular company I know in the Minneapolis area that is known for having, you know, significantly higher wages, but being a very, very competitive and difficult place to work. Speaker 1 00:15:39 And I know there are people that love working there, and there are people that don't that work for their competitors. You get to decide that if you wanna be a hyper competitive company and hire those kinds of people, you can raise your wages and create that kind of environment. And the one thing I would say as a warning to that is if your EVP is primarily focused on above average pay, that means that that person, those people will leave when they find more money somewhere else <laugh>. So it will bite you in the end. Anyway, it's complicated topic, and I'm gonna write an article about it, but it is absolutely something we have to deal with this year. This is not a short term thing. We're gonna be living with this for a while. It's taken many years for our friends in Washington to create this situation. And we are now stuck with it until the banking system decides to do something about it. And please call us. We have all our research on employee experience. We have all our research on recruiting coming out. And then in 2022, we're gonna do a sort of an interesting study of pay equity and rewards too. So stay tuned for more. Thanks a lot.

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