Addressing Inflationary Pressures: HR Strategies for Startups and Scaleups

This brief period gave employees higher bargaining power as there was also a labor shortage and few were willing to make a change in an uncertain scenario on short notice.

The Human Resource (HR) department has key responsibilities such as recruiting, ensuring a safe work environment, managing employee relations, administering payroll, managing compensation & benefits packages, handling disciplinary needs, ensuring compliance with labor laws and regulations, and overseeing training programs and supporting employee development, Developing a Talent Acquisition (TA) strategy, and managing Diversity, Equity & Inclusion (DEI) efforts, among others. Well, each task comprises a number of processes and steps, all of which are followed in accordance with HR policies, and these are mostly what majority of employees and workers are likely to believe is where the line is drawn with regards to HR responsibilities.

Nonetheless, these tasks are incredibly important and besides essentially providing labor to produce goods and services in an economy and utilizing various elements, such as knowledge, experience, and skills, which enable labor to be effective in manufacturing and generating profit, HR plays other key roles as well. In addition to being a key department in any organization, the HR is in a position to observe and monitor wider economic impacts that could affect employees, before the situation becomes evident to higher-ups in an organization. Inflation is another aspect that HR departments face challenges with, and this goes far beyond the calling of recruitment departments to source, attract, and retain existing talent and candidates for crucial roles.

Some HR Challenges Inflation Can Create in Real-World Scenarios

While inflation to some means a rise in costs of goods and services, it does not actually end there for the HR department. Labor costs can also rise as a result of inflation, as workers tend to demand higher wages or salaries, and this can pose major challenges to recruiters allocated budgets at current salary or wage scales. Also, this period can also result in a sudden incline in the number of requests for pay increase/hike, and pressures increase to meet such demands or lose talent and employees to competitors, and this can be especially risky for startups and scaleups, and other organizations on similar scale.

Rising fuel prices translate to costlier commutes and transportation, thereby causing cost of living to incline sharply and quite suddenly. Besides impacting spending capacity, it can restrain affordability of basics such as travel or commuting to office on a daily basis. This can result in a high number of  employees making requests/demands to be allowed flexibility in work timings or to work remotely or from home to save on costs otherwise incurred on commuting. 

Health issues can also be stimulated by inflation, resulting in increased stress levels and anxiety, and also cause increased absenteeism or reluctance to attend work owing to need to address such issues urgently. This can result in a surge in number of employees accessing and making use of company administered mental health resources to cope with mental strain magnified by such a crisis. This cannot be denied to the employee as the HR has taken on statutory duty to look after the physical and the mental health of concerned employees. Inflationary pressures invariably drips down departments and can only be addressed to some extent by tightening budgets in the bid to make efficiency savings going ahead. Well, these are only some of the not so well-known challenges HR may need to deal with, and while this has merely been used as an example, it is an all too real-world scenario.

Pandemic Pressure Provided Perfect Predicament for Practice

The COVID-19 pandemic was an episode that taught everyone from across all walks of life a serious lesson in more ways than one. Companies were exposed to volatility and uncertainties as the pandemic battered the global economy, resulted in lockdowns, supply chain disruptions, closed businesses, stalled manufacturing facilities, and brought everything to a standstill as the highest spike in inflation was recorded in 39 years across the year 2021. The gradual limp back to normal left the world facing unique challenges, and for the HR it was this period of inflation that created a candidate-driven job market, which magnified recruitment and retention challenges for the HR.

This brief period gave employees higher bargaining power as there was also a labor shortage and few were willing to make a change in an uncertain scenario on short notice. Companies had been trying to rebound and were hard-hit by revenue losses, and accommodating demands for higher pay package was not a viable option for all employers. This inflation challenge however is directly related to salary of an employee and purchasing power, and incline in costs of consumer goods leaves employees eying their employer to match the rate of inflation. Even if companies were able to pay, but if the increment were less than the rate of inflation, it would be considered an implicit pay cut and not considered deserving by an employee. Either way, it was a challenging period for the HR and inability to meet compensation invariably ended in resignation or failure to be productive, thereby adding another layer of complexity to an already complex and talent-strapped market.

Addressing Challenges In Difficult Situations and Keeping Morale Going

However, there was much learned during this trying time and a lot of that knowledge is currently serving to meet challenges logically and rationally. In such situations, non-monetary compensation can contribute to the much-needed support startups and scaleups can leverage due to unexpected and unforeseen challenges. Keeping employees engaged and retaining talent may be easier said than done, and for HR professionals looking to address inflation while covering all angles, a pay rise may not always be the only way to boost employee satisfaction and morale and create a win-win situation.

Taking a cue out of the book of strategies deployed post the pandemic, offering more flexibility and more autonomy can be done by adopting a hybrid work model that offers employees flexibility to work from home on some days and saves on costs otherwise incurred to be physically present on all days of the week. Another approach would be to accommodate flexibility requests in terms of freedom to work where and when the employee finds convenient, but with access to the premises of the physical office open at all time without restriction. This places importance, free will, flexibility, and freedom as an option for the employee to choose from, and also provides employer with a buffer to counter requests or demands for salary hikes as well as dilute any such expectations during periods of inflation.

Using flexibility as a go-between can open up numerous options to compensate employees without needing to raise pay or agree to such demands. Flexibility in deadlines, extension of feasible deadlines, remote working, flexibility to work on specific days, and schedule-sharing are options that can be highlighted as ideal for enjoying a more equitable work-life balance and used as lucrative bargaining chips.

Another approach is to offer opportunities to enhance career prospects and training initiatives and programs. Providing Learning and Development (L&D), education, coaching, mentorship, and career pathing can make an employee feel valued for being considered for rewards, and these rewards do not necessarily have to be in the form of monetary compensations to elicit the best responses or reactions. Some employees may be keener to gain valuable skills, experience, and knowledge, but may not have had the proper funds, opportunities, or support to be able to pursue such interests. It also comes with additional clout when offered through the employer as it clears the path to attend the courses or programs and be spared any stresses related to need for leave for examinations or for related activities and studies etc. Such gestures also indicate that a company values its employees, is willing to invest in them, and it also serves to build loyalty and drive employee satisfaction.

Offering retention bonus is another approach to address a difficult situation in challenging times as well as for incentivizing employees to stay with the company through a set period of time. It also serves to take the edge off employee frustration and to manage the impact of inflation on the employees’ wallets and helps to avoid permanent or fixed costs that may be incurred to pay a permanent or steady amount in the form of an increased or hiked salary, or base pay.  It works both ways because as a bonus, it does not mean that employee cannot expect a salary hike in better times and is just a financial compensation for the time-being. Also, bonuses are commonly part of compensation in the form of variable pay that are ideally associated with performance of an individual or team. Being a one-off lumpsum payment, this type of compensation serves effectively to extend payment to employees, but without increasing payroll costs permanently.

It is certain that all companies may not be able to match salary increases with rate of inflation, but understanding situations and knowing what solutions or approaches can be applied to ease a situation in the best interest of all parties takes some exceptional skill and talent. While a good bit of creativity can serve well to make a tough situation surrender to some extent, it is the tact of the HR to address matters and challenges related to workplace, employee satisfaction, and productivity, among others, and inflation and its many potential challenges can be overcome with the right mix of knowledge, understanding, confidence, and approach, all while continuing to build satisfied and productive workforces.