Asking for a Salary Raise: The Impact of Inflation

By Laura MacDonald|17-01-2023 | 7 Min Read
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"Inflationary periods can be difficult..."

Navigating pay negotiations can be daunting, particularly when the economy is being affected by inflation. As a manager, it's important to be aware of the changing economic environment and how it can affect your team.

Asking for a pay raise is always difficult, but during inflationary periods it can become even more complicated. This article will discuss strategies on how to effectively ask for a raise under these conditions. It will also provide key steps you should take in order to ensure a successful negotiation for both you and your employer.

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It is important to keep in mind that inflation affects everyone, including employers. Inflation can have an impact on the company's bottom line and its ability to increase salaries. It's possible that any raise you may be granted may not be as much as you were hoping for, given the economic climate.

How inflation works

Inflation is the persistent increase in the general level of prices in an economy. It is measured by percentage changes in a basket of consumer goods and services that are commonly purchased. Inflation occurs when too much money is chasing too few goods and services, creating an imbalance in supply and demand. This imbalance causes prices to rise over time.

Inflation is almost always a multi-variate issue, with the most common causes being:

  • Increase in costs of production and/or wages.
  • Low levels of aggregate demand lead to a decrease in supply relative to the quantity of money available.
  • The effects of an increase in borrowing as governments try to boost economic growth.
  • Rapid expansion or contraction of the money supply due to central bank policy.
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Why workers have a right to be concerned about inflation

Workers have every right to be concerned about the value of their money during a period of inflation. Because wages tend to lag behind inflation, workers may find that the purchasing power of their income is declining. This means they can't buy as much with the same amount of money, and it takes more effort to maintain a certain lifestyle.

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Inflation also erodes the value of accumulated savings, which could have been invested for retirement or other important goals. Inflation has the potential to diminish not only the purchasing power of wages but also the real value of financial assets such as stocks and bonds.

Explore: Beyond COVID-19: Creating a Legacy of Kindness

There are, of course, other financial realities within an organisation, and while it might be the desire of individual managers or HR leaders to relieve the burden on employees, they must also consider the organisation’s financial well-being. So, while a salary increase is necessary to keep up with the rising costs of living associated with inflation, it’s important to understand that there are other factors in play when it comes to making this decision.

Read more: 5 Practical Tips To Negotiate For Salary Raise

6 Considerations when dealing with raise requests as a manager during inflationary periods

First consideration: What kind of extra costs can the organisation sustain at the moment?

This is obviously the first question managers need to ask themselves when confronted with a salary increase request, and it can be hard to talk about with employees. Are there funds available to cover the extra costs associated with a raise? If not, managers must look for other ways to meet employees’ financial needs.

Monetary compensation might not be an option right now, but there are other forms of compensation that might make an employee feel like they are gaining value. Examples include:

  • additional vacation days
  • flexible work hours
  • improved benefits packages
  • bonus structures
  • increased retirement contribution matching

Read this: 10 Different Ideas for Rewarding Your Team

Second consideration: What is the rest of the industry doing?

People are far more apt to leave a company if competitors in the industry help them protect their earnings and savings better. In order to stay competitive, managers must understand what other organisations are doing in terms of salary, benefits, and training and development increases for their employees.

This consideration is very often one that should be made on an employee-by-employee basis and tailored to each situation.

No one wants to lose high performers to the competition, so while there may not be a large pool of funds that are generally available for all employees and their inflation concerns, managers should be prepared to make the case for individual increases when a strong performer is in danger of leaving.

Third consideration: Is there an opportunity to provide training and development?

Inflation affects everyone, and it’s not just about having enough money to make ends meet. When people are struggling with increasing costs of living, they also worry about their skills becoming outdated or irrelevant.

Providing training and development opportunities can help employees feel valued and appreciated, even when a raise is not possible. Not only does this approach give workers the chance to learn new skills, but it can also be a way for managers to recognise an employee’s hard work and dedication without increasing the salary budget.

This may interest you: 4 Truly Significant Learning and Development Opportunities to Offer Your Employees (and Why)

Fourth consideration: Is there a way to provide financial security?

Inflation can have a significant effect on employees’ financial security, especially those who depend solely on their salaries and don’t have any other sources of income or savings.

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In this situation, managers should consider providing access to financial planning resources or other programs that give employees access to financial coaches who can help them make the most of their money.

Fifth consideration: Don't negotiate in isolation

It’s important to remember that the decision to provide a salary increase should not be made in a vacuum. Managers should consider how any salary increases fit into the larger organisational context, both in terms of budget and overall performance.

If a raise is given to one employee, it needs to make sense within the organisation as a whole.

Sixth consideration: Consider the effects on team dynamics

When it comes to salary increases, managers must also pay attention to the overall impact they have on team dynamics. If one employee is given a raise while the others are not, this can create tension and resentment within the team. Managers need to be aware of the potential effects of a raise and be ready to address them.

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Inflation is an ever-present reality that can have a significant effect on employees’ financial security, but managers should not feel overwhelmed by the prospect of salary increases. By considering all available options and weighing their impact on team dynamics, they can make decisions that benefit both employees and the organisation as a whole.

Conclusion

Asking for and handling raises during inflationary periods can be a difficult task, but with careful consideration and thoughtful planning, it is possible to find solutions that both sides can benefit from.

By considering the options available, such as additional vacation days or improved benefits packages, staying competitive with industry standards and focusing on team dynamics, managers can make decisions that keep employees engaged and make the organisation more successful.

Inflationary periods can be difficult, but with careful consideration and a willingness to find creative solutions, managers can remain competitive while keeping their employees financially secure.

Supplementary reading: Sitting in the Muck and Being Ok

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Laura MacDonald has been covering the productivity and sales, and marketing spaces for over a decade. She loves learning about and explaining new developments in sales and marketing. When she’s not researching and writing her next piece, she is probably out running with her dogs.

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