Inflation is hitting the workforce hard. But Chief Financial Officers (CFOs) and Chief Executive Officers (CEOs) aren’t reacting by raising all salaries even during the Great Resignation.
A June 2022 Gartner survey found that out of the 130 CFOs and CEOs surveyed 28% plan to give all employees a raise in response to inflation. But 51% only plan to give raises to top performers.
Why just top performers?
It’s a compensation strategy, according to the survey.
But you also have to take into consideration that comp strategies are changing due to the pinch point of inflation going up and an economic forecast for the next year. Plus, the U.S. Bureau of Labor Statistics recently reported that hiring rates/salaries are staying steady, which mostly affects current employees.
With all of that combined, there’s a strong likelihood it’ll lead to wage compression, and further fuel the great resignation.
Key to pay raises
To counter the cost of living going up, the C-suites said they plan for employee performance to be the key indicator for awarding pay raises – and that’s for salaried and hourly employees.
“Rising labor costs are among the most negatively impactful to operating cash flow, and it follows that we see a more limited approach to pay rises either by performance or in select markets for now,” said Randeep Rathindran, VP, research in the Gartner Finance practice. “Organizations will continue to look at benefits beyond compensation as an approach to fight employee attrition and keep costs across the labor force as balanced as possible.”
The Great Resignation has led many employees to feel like they can demand a salary increase or threaten to leave. While this may have worked in the past, the threat of a recession has CEOs and CFOs rethinking their retention strategies and tightening their belts.
By only giving increases to top performers, C-suites are sending a clear message: No more across-the-board raises.
Is it a risk?
Maybe, but in a tight labor market, you want to hold on to your A players. And if they’re the only ones getting raises, then the entire pay raise budget can go to them which means bigger increases.
Rethink strategy in future
And while these firms may have some disappointed employees, this decision isn’t forever. According to Rathindran, additional survey data shows that some CEOs and CFOs are planning bigger compensation investments in the future. Forty-three percent plan to give one-time bonuses in addition to regular pay raises in an attempt to keep talent, while another 39% plan to fully or partially index pay adjustments to inflation.
Whatever financial plans companies embrace to retain top talent, it’s a good idea to be transparent with policies so that employees understand why certain steps are being taken. And let them know if the plans are temporary and will be reexamined in the not-too-distant future when finances improve.