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Should You Match Raises to Connecticut’s Rate of Inflation?

Salary increases show employees that they’re valued by their employer. Without proper pay growth, most employees begin looking for opportunities elsewhere. As a result, it’s a critical part of the broader retention picture.

The issue is that inflation complicates the situation. When inflation is high, purchasing power declines quickly. In turn, raises that don’t align with inflation don’t help employees recover their purchasing power, which leads to frustration.

However, that doesn’t mean aligning pay increases with inflation is the best move either. Here’s what you need to consider when deciding whether to match raises to inflation.

Benefits of Matching Wages to Inflation

Matching pay raises to inflation allows companies to help employees maintain their purchasing power. Essentially, the salary increases offset the rising prices, ensuring workers can continue supporting their current quality of life.

Generally, letting employees know that they’re receiving raises that align with inflation is well-received. It shows the company is aware of how prices are changing and is working to ensure employees don’t feel the sting. Plus, many workers understand that if prices decline, they’re coming out ahead financially, which also boosts morale.

Drawbacks of Matching Wages to Inflation

In most cases, the major drawback to matching inflation is the cost to companies during periods of high inflation. At its highest level in 2022, inflation crossed the 9 percent mark. Considering that annual raises offered by companies typically sit in the 3 to 5 percent range, that’s a significantly higher payroll investment.

Additionally, matching inflation preserves an employee’s purchasing power; it doesn’t necessarily elevate their standard of living. As a result, some employees may feel that the raise did nothing more than maintain the status quo from their perspective, so there’s a chance that even offering raises that large won’t please everyone.

How Much to Raise Salaries If Not Matching Inflation

If your company isn’t planning to explicitly match inflation, the focus should be on remaining competitive. Explore average salaries for similar positions at competitor companies in your area. Determine how much is offered to their new hires and existing employees. Then, try to meet or slightly exceed those salaries.

By using this competition-oriented approach, you can reduce recruitment difficulties and reduce turnover. Essentially, it ensures your company’s salaries are in line with other similar businesses in your industry and region, preventing your organization from falling behind the curve.

Other Options for Elevating Total Compensation

While salaries are a primary concern for employees, companies can also offer a range of benefits that help lower out-of-pocket costs. At times, these alternatives are less expensive than salary increases but provide suitable value to workers, making them worth exploring.

Covering more of employees’ medical premiums is a prime example, as it reduces how much of a worker’s paycheck goes to that expense. Offering a slightly higher retirement contribution match is potentially another practical option. Finally, securing lower-cost services for employees – such as gym membership price reductions, financial coaching, and reduced daycare pricing – through partnerships can make a difference.

Looking for a Better Way to Manage Workforce Costs?

Ultimately, finding ways to adjust compensation to offset some or all of the impact of inflation is wise if you want to boost recruitment and retention. If you’d like to learn more, A.R. Mazzotta can help. Additionally, if you need to expand your team, A.R. Mazzotta offers flexible, affordable hiring solutions for any need. Request an employee from A.R. Mazzotta today.