10 tips for redefining your pay-strategies for a declining cedi

The last few years have been challenging for employees worldwide, and in Ghana too….  First we had the COVID-19 pandemic, then recently the war in Europe and its effect on fuel prices in Ghana – and now the steep depreciation of the Ghana cedi.

And the latest struggle – the cedi’s record-high inflation – is real and everyone is experiencing it.

But it seems inflation is a universal phenomenon right now – even the US experienced 40-year high inflation in June, according to the U.S. Bureau of Labour Statistics.

“There’s a lot of stress from employees. It’s certainly top of mind; inflation is something that employees are concerned about,” says Tony Guadagni, senior principal in the Gartner HR practice. And employers are thinking about it, too. If they don’t, they risk having distracted, stressed and unproductive workers – and worse yet, they risk losing employees to better-paying jobs, which is especially possible in today’s hot job market.

“With inflation coupled with this really competitive labour market, employee concern means it’s something organisations have to really be thinking and cautious about,” Guadagni says. “It’s critically important for employers toaddress this.”

And with inflation rising and little relief in sight, consumers will feel the pain of higher prices for months to come. For employers, high inflation puts upward pressure on wages and salaries. To hold onto workers, many employers are resetting their pay strategies and increasing their salary budgets for 2022.

Before we go to the how-to part, may I suggest that you:

1. Identify employees likely to have concerns – This allows managers 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.

Thanks….

How-to adjust salaries? 12 Tips

Let’s now talk about what is possible to deal with salary adjustments and inflation.

As a good practice, your company should be tracking wage trends

A CFO and/or a senior HR executive can confidently fine-tune compensation by carefully monitoring shifts in total compensation – including wages and benefits – across occupations in their industries.

While monitoring current wages, CFOs or HR should also make sure to track leading indicators of pay levels; like the unemployment rate, labour market trends, actual inflation, etc.

In all fairness, COVID-19 has blurred any correlation with – for example in the US – the labour market tightening and wages increasing even as unemployment remained elevated.

Ideally, you should search for possible Employment Cost Index or any similar data from the Ghana Statistical Services (I am not aware of what they have please).

Understand the inflation rate in general and in your industry especially

Don’t get distracted or trust government statistics: by the time they are published, they can be outdated and the inflation might be higher – a lot higher.

Use commonsense – talk about it with your CFO/Finance Director, other senior executives and your team, of course. (Sadly, organisations usually know what their inflation story is like – even market women do; but they turn a deaf ear when it’s about salaries so they can keep costs low).

Inflation is measured by changes in the CPI (Consumer Price Index). The CPI considers changes in price for food, housing, transportation costs, medical care, clothing, recreation and education.

If you were to buy the same things this year compared to last year, prices would seem to be roughly 50-80% higher (this is not an exact figure).

Start by giving special consideration to the employees most affected by inflation 

Have you ever wondered what might be keeping your low-salaried employees up at night? Aside from family sickness, it’s their concerns about making ends meet financially, especially given the recent rise in grocery and gas prices – oh, since September 1^st add the circa 25% spikes in electricity and water bills.

Why don’t you take a ‘living wage’ approach and define the realistic new minimum wages internally, evaluating whether starting wages may need a bump – especially in higher-cost markets?

You can increase salaries or explore the options of lump-sum awards, stipends or commuting assistance (not everyone pays T&T to their employees), free lunch at work, etc. to help employees with expenses.

You should have or set a clear Salary Adjustment Strategy

Think about how you do salary adjustments and (re)define a clear and well thought-through methodology for it.

For example, someone earning minimum wage might need a 50-100% increase, while someone earning, let’s say GH¢10,000 net, might need only a 5% adjustment.

Proactively and transparently address employee concerns about pay

We need to understand and keep in mind that everywhere in the world, whether employees are being paid fairly or not, their perception of that fairness influences their decision to stay or go/join a new company.

Respect your employees and their dignity; and instead of waiting for them to come to you, proactively address potential concerns – especially any ambiguity and possible misconception.

Increase transparency to reassure your employees that their pay is competitive Simply share how pay is determined, explain how compensation is set broadly, and how workers’ pay is competitive with the broader market. So, please help your employees understand what they would make in another job or how their current pay compares to the market.

You can simply anonymously plot a few employees’ base pay, total cash compensation and total direct compensation against a competitive range for their position. This will help employees really understand how their compensation compares to the market, and nullifies assumptions propagated by external sources. Let them see how their compensation compares to current job market benchmarks

FYI: According to 2020 Gartner research, 50% of employees discuss pay with one another – up from 38% in 2018. Given this, it’s wise to proactively communicate your pay strategy and openly talk about/educate them regarding long-term trends in inflation and the job market.

Communicate – talk to your employees about your short- and long-term actions 

“Communication about pay is not a one-time activity — and employees want to hear about pay regularly,” says Guadagni. Senior Principal in the Gartner HR practice. “In fact, Gartner research from 3Q21 shows employees expect a 10.5% increase in total compensation on average when switching employers.”

According to the 2021 Gartner Employee Perception of Pay Decisions Survey, nearly half (45%) of employees want to receive communications about pay at least once a month; but only a third actually do. So we need to adapt how and what you communicate, as employees’ need change – in both the short- and long-term.

For the short-term and after initial communication about pay and inflation, collect FAQs and update pay resources accordingly. You can source these questions yourself, or rely on individual managers. In the long-term, as employees’ understanding and the business environment change, different pay topics will of course take priority.

Every industry has a different rate of inflation – Know yours

Obviously, different industries procure different raw materials and services for creating their own products or provision their services… and that, of course, reflects on the increase of the prices of products or service. If that increase is let’s say 20%, it might not be sustainable to increase salaries by 30% (at least not if you increase salaries every year).

Know what competitors are paying for similar positions

This is probably a bit tricky to do but not impossible…. Don’t trust outdated salary guides or ones based on irrelevant or small samples (usually the case with all salary surveys in Ghana). Surveys from well-known consulting firms also tend to be irrelevant at the beginning of an inflation market.

My advice: you should be talking to the HR people of your competitors…some knowledge has to be shared.  Things like job descriptions, geographic distributions and industries can inform you how much you should increase your employees’ salaries.

Assuming that you have established your company’s very own strategy, goals and budget, look at the market to define how your company’s pay grades and salary ranges should be adjusted.

Be ethical about salary increases and price increases of your products & services

I see (not only in Ghana) that companies increase their prices by 50%**, but employee salary increases haven’t taken place yet (while the inflation started several months ago) or they were given a 5% increase.

How motivated will you be as an employee if you witness that?

**(I am not referring to situations where raw materials spike seasonally or otherwise)

 

Medical insurance and other benefits

Sometimes small companies feel that they will have a hard time competing with larger companies. Please, don’t allow that to make you miss out on talent – because employees do not any longer see work as being only about compensation.

While equitable and fair pay remains a top consideration, employees are also looking for companies that care about employees and their work-life balance. Your employees will want things like flexible work schedules and the various non-monetary benefits you can offer.

And medical insurance is definitely a decisive factor for employees with families when they choose to move or stay in a company.

You may want to consider investing in benefits like student loans for a higher degree, share schemes, day-care subsidies or uniforms, lunch benefits etc. These offerings can directly help any employee’s pocketbook. These investments usually pay off by attracting and retaining key employees, and thus they can quickly out-weigh costs

Keep it real: don’t approve wage increases which exceed productivity gains

You should look at realistic market benchmarks and solid business reasons before you ever decide to increase a salary higher than the productivity gain you have for a given employee.

All that said, please always focus on the supply and demand for talent.

Teach your employees Personal Finance Management!!!

Don’t assume that your employees – irrespective of their education and seniority – have even the slightest idea about how to manage their personal finances.  And in times of hyperinflation like these, it is of paramount importance to do so.

Use a senior finance employee to teach them – you don’t need to hire a trainer whose ability to do knowledge-transfer you don’t know.

Most employees do not know how to budget their costs, set aside money for emergencies or learn how to stretch their cedis.

Definitely, now is the time to promote such programmes.

What’s next?                 

I understand that not all organizations can or will choose to adjust pay based on inflation. But still, all our HR leaders can minimise the impact on turnover by addressing employees’ pay concerns clearly and frequently.

The right amount will depend on your budget, state of the economy, industry average salary, and other benefits you offer. And while salary increases can help to improve employee morale and productivity, most important is that employees feel appreciated and are paid what they are worth. Ultimately, though, it is up to you to decide what is best for your employees.

Communicate with your employees – don’t let them wonder or pray for fair inflation adjustments.

If you genuinely display active human compassion, you might be surprised how understanding and loyal your employees can be.

Spiros Tsaltas –a former University Professor & Management Consultant, is the Interim MD of HIREghana, Ghana’s Leading Recruitment and Executive Search Firm. He welcomes all your comments/ remarks/ feedback /suggestions at Press [at] HIREgh .com. HIREghana can be reached at +233 50 83 22 535