Worried about salary inflation?

Whether we think about it with our HR hat on or just as regular employees, we all get shaky and worried about it. What should we do about the crazy inflation?!

As always, the answer depends on the situation.
However, the answer is relatively straightforward for the next month or three:

Sit tight!

Large organizations, which still make up most of the labor market, are generally not panicking and increasing salaries but instead waiting to see how the entire year turns out. Collective agreements, market practice, and being a reliable employer makes salaries “sticky.” If/when the market turns down, the salaries won’t decrease.

In years of low inflation, which has been the case for over a decade, salary increases have not been kept at that same low level. Inflation and salary increases have never been the same. The message of “sit tight” is also confirmed by figures from the more prominent salary data firms, which regularly measure salary increases and salary levels.

Salary budgets generally look higher than in previous years but not close to the inflation figures we have seen. Regarding those figures, we also need to remember that the inflation figures are presented in the current month, and the full-year figure (which correlates to the increase) will not be known until the year has ended.

But – if you are a smaller business with up to 30-40 employees without heavy and fixed processes where individuals matter, you could now consider making a minor adjustment. It’s likely hard to see that annual review budgets will be anything less than 2-3 %, so consider adding that now (as inflation is already having an impact). Ensure a close dialogue with the employee and outline that this increase is part of the annual review and will be considered a total when Q1 (or when the annual review is done) approaches.

What happens after this is still unknown and depends significantly on how the inflation, interest rates, and macroeconomic environment develops until Q1 2023. We will most likely need to revisit this topic then!

If you find yourself needing a partner for the review or someone to discuss with, let Johannes set you up.