Salary vs Inflation

Recruitment challenges in times of speeding inflation.

The topic of remuneration in the period of inflation is one of the most difficult challenges for
employers. Rising inflation implies rising financial expectations of both current employees and
even more so among candidates newly recruited to the company.
In March 2022 inflation in Poland reached 11%, and in April annual inflation accelerated to
12.4%, which on the labor market resulted in a further increase in employees‘ expectations
regarding the need for higher salaries.

Salaries versus inflation.

Inflation – the rate at which the value of a currency is falling and, consequently, the general
level of prices for goods and services is rising. In Poland in March 2022 inflation reached 11%,
and in April annual inflation in Poland accelerated to 12.4%, which on the labor market resulted
in a further increase in employees‘ expectations regarding the need for higher salaries.
Inflation – the rate at which the value of a currency is falling and, consequently, the general
level of prices for goods and services is rising. In Poland in March 2022 inflation reached 11%,
and in April annual inflation in Poland accelerated to 12.4%, which on the labor market resulted
in a further increase in employees‘ expectations regarding the need for higher salaries.

The level of inflation as we have in 2022 is not followed by proportional increase of salaries,
thus it causes trouble on the labor market. In principle salaries are driven by changes to
supply/demand for labor which can be caused by demographic trends, labor participation rates,
technological advances, and growth in productivity. On the other hand, salary increases as we
know can be caused by a few different reasons and often are one of the starting factors of
inflation because the labor cost of producing goods and services goes up. As a consequence to
make up for the increase in cost, companies must charge more for their goods and services to
maintain the same level of profitability.

What about daily practice?

As inflation keeps rising, so do employees‘ expectations for higher salaries. In the situation of
very low unemployment rate reflection of incoherency between speed of inflation rising and
development of salaries is very strong. In order to accomplish that gap salaries need to be driven
by different inputs. Although meeting the employee’s request for increased salaries is not an
easy task, there are some ways to make it possible. One of the ways to accomplish is to address
inflation and the performance of an employee when discussing this topic. It is good to raise the
topic simply, firstly asking for something employee can offer additionally.

Recruitment processes in troubles.

TARGET’s Executive Search recruitment projects show clearly that in principle candidates
while changing a job in majority ask for higher salaries, which currently is even much more
visible and difficult to accomplish by new employers in times of high inflation level. In the
recruitment projects we have been conducting in the year 2022 – the candidate’s financial
expectation are average 15% -20% higher than budget dedicated to salary. In addition but also
connected with, current unpredictable situation cause employees to be more selective while
considering new offers and not taking a risk.
How do companies deal with this issue depends on the positions specifics, the remuneration
policy and sometimes simply flexibility.
Obviously in the majority of the cases the simplest way which would be offering higher salary
is not possible.
What then can employer do to optimize the workforce costs?

Good-quality work must stand up for itself.

It seems detailed analyses of the company processes and employees competences might be
helpful, and so focusing the attention on the below aspects can be helpful:
– Resign from skills not crucial for the position – and so acquire the candidates of lower
competences and so lower salary expectations and give new employee the time for
developing new skills.
– Optimize internal processes in order employees competences are fully accomplished
and eliminate the situation of duplicating their duties – as a result less people can be
better paid.
– Focus on improving the employee’s time management skills. In majority of cases it is
manageable unless chaotic work is an unchangeable feature of character.
– Offer additional benefits, such as special trainings, and life work balance package.
– Propose more flexibility on hybrid forms of job as well as fully remote – also employing
for work on position in big cities candidates from other location in Poland or even other
countries, including non EU. It works already, especially for IT and new technology
sector.
– Stop age discrimination referring older candidates.

Find the right motivation.

In some cases money is the only real reason that would cause the person to leave the comfort
zone and to change for new job. It is crucial to recognize, if in the long term perspective such
motivation will benefit in real satisfaction on field of professional results both for employer but
also employee.