Your Guide to Adapting Pay Strategies to Hire Retail Staff During Inflation

Navigating through inflation can be a real problem for small business owners, especially when it comes to keeping and attracting talented retail staff. With inflation on the rise, it's essential to revamp your pay strategies to ensure your employees are content and motivated.

The thing is, when inflation kicks in, it doesn't just affect the prices of goods and services; it also affects your employees' wallets. Naturally, they start seeking better-paying gigs to keep up with the rising costs of living.

As an employer, you've got to stay ahead of the game by implementing smart strategies to retain and recruit the best talent in such times.

Understanding Inflation – A Simplified Overview

Inflation is essentially the measurement of how prices rise over time. The measurement is typically quantified as a percentage, indicating the extent to which prices have gone up.

To gauge inflation rates, economists rely on something called the Consumer Price Index (CPI). This index tracks the average price changes for various goods and services that consumers typically buy.

So, why does inflation happen?

Think of inflation as the result of prices gradually climbing up, which includes the everyday stuff. When this occurs, the money people earn and save today doesn't stretch as far as it used to before. 

Now, while the impact of inflation varies from one household to another, it's undeniable that these sharp price hikes pinch everyone's pockets. With less money to cover debts, daily expenses, and other things, consumers start feeling the squeeze.

Understanding inflation is crucial for running a successful retail business, and having a strong workforce. 

The Impact of Inflation on Retail

Let's break down how inflation tends to throw curveballs at retailers – 

Consumer Spending Shifts

With the cost of living on the rise, consumers are rethinking their spending habits. As prices climb, consumers are prioritizing their needs over wants. Many are trimming discretionary spending and honing in on essentials to stretch their money further.

To combat higher prices, some consumers are also turning to bulk purchases, seeking out private label products for their affordability, along with discounts.

As prices inch upwards and consumer purchasing power diminishes, demand for goods naturally takes a hit. According to McKinsey, a significant portion of large retailers have reported declines in revenue estimates for 2023, along with decreases in earnings projections.

This shift means trouble for retailers, resulting in dwindling revenue and challenges in forecasting inventory needs.

Operating Costs

Small businesses are also struggling with their operating costs. From stocking inventory to handling fulfilment, investing in technology, and paying rent, everything seems to come with a higher price tag these days. It's a tough spot for businesses to be in.

To cope, many have been forced to increase their prices. But even with these adjustments, they're still not seeing the profits they need to thrive and break free from the pressures of an inflationary market. 

Customer Loyalty

Inflation isn't just affecting prices, but it's also shaking up customer loyalty. In the past, factors like great experiences, top-notch service, and a company's values played a big role in winning customers' hearts. But during inflation, all that matters is – price.

Customers are more willing to ditch their favourite brands if they find better deals elsewhere, regardless of their previous positive experiences.

Employee Salaries and Retention

Inflation in the current labour market has put retailers in a tight spot. While employers offer higher compensation to employees, the hikes still leave employees with less purchasing power. 

As a result, retail workers start looking for opportunities to jump ship for greener pastures. Even those who wish to stick around are on the lookout for better-paying gigs to leverage with their current bosses. If retailers can't match the wage increase, they risk losing their best employees.

Inflation has emerged as the top challenge for over 60% of small business owners, according to the SBAF Small Business Survey. Similarly, the NFIB Small Business Optimism Index highlights inflation as the new numero uno concern, with a whopping 31% of owners citing it as their biggest headache – the highest reading since the early '80s.

What Can Retailers Do?

As retailers, you can incorporate the following strategies to revise your employee compensations according to inflation – 

Understanding Salary Trends in the Industry

Salaries can vary depending on the industry and where you live. You should start by doing research on the current salary benchmarks by doing a deep dive into websites like Salary.com, PayScale, BLS.gov, or Glassdoor.

When you're looking at salaries, it helps to see the low, average, and high amounts for a job. It gives an idea of what's normal and lets you offer more to people who are really good at what they do.

Using market data to set salaries helps make sure everyone gets paid fairly and that your company looks good as a fair employer. It also makes it easier to decide on salaries, reduces unfairness, and helps employees understand why they get paid what they do.

Conducting a Comprehensive Inflation Analysis

We live in a world of information overload, and therefore, pinpointing accurate and reliable data can be quite a challenge. It is particularly true when it comes to understanding the impact of inflation on retail. 

However, if you're keen on staying well-informed about inflation and its effects, keep your knowledge updated by exploring various resources, such as the Harvard Business Review, and Wall Street Journal, and other specialised global publications. 

Another effective strategy for anticipating future trends in retail would be to actively listen to your customers. 

By leveraging these diverse sources of information and fostering direct communication with frontline staff, retailers can gain a deeper understanding of market trends and customer preferences, enabling them to navigate the complexities of inflation and drive sustainable business growth.

Considering Your Company Budget

When it comes to deciding how much to pay your employees, your company's budget plays a crucial role. It's essential to strike a balance between attracting top talent and managing your finances effectively.

Typically, businesses allocate a significant portion of their gross revenue—somewhere between 40 to 80 percent—towards employee compensation, covering both salaries and benefits. This range ensures that you're competitive in the job market while also maintaining financial stability.

However, it's not just about how much you can afford to pay; it's also about the return on investment (ROI) you expect from your employees. 

Consider how much value a new hire can bring to your business and set their salary accordingly. By calculating the ROI, you aim to achieve, you can ensure that your compensation packages align with your business goals and financial objectives.

Determining Your Salary Spending Ratio

Calculating the percentage of gross revenue that goes into payroll is pretty straightforward. 

Simply divide your total revenues by the payroll expenses and then multiply the result by 100 to get the percentage.

For instance, let's say your gross annual revenue amounts to $100,000, and your annual payroll expenditure totals $20,000. In this case, your gross revenue to payroll percentage would be calculated as follows: $100,000 ÷ $20,000 = 0.20, which is equivalent to 20 percent.

Keep in mind that the percentage of revenue allocated to employee salaries varies significantly across industries, and it’s higher in retail. However, for most businesses, aiming for a salary expenditure of fifteen to thirty percent of gross revenue is considered ideal.

Introducing a Variable Pay Program

Sometimes, bumping up base salaries isn't always feasible due to budget constraints or when a candidate's salary expectations are higher than anticipated. For such instances, variable pay programs work out the best.

Unlike fixed salaries, which are set regardless of performance, variable pay rewards employees based on their contributions to the company's success.

It's a win-win scenario – employees have the chance to earn more while being motivated to excel, all without putting too much strain on your budget.

What's more is variable pay isn't as permanent as salary increases. If your financial situation changes or market conditions shift, you can easily adjust or end these programs, preventing long-term overpayments.

Providing Meaningful Benefits

Beyond adjusting salaries for inflation, consider bolstering your benefits package to alleviate the financial strain on your employees. Offering alternative benefits can be a powerful way to support your workforce during economic uncertainties. Here are some options to consider –

• Healthcare Benefits
• Flexible Work Arrangements
• Additional Paid Time Off
• Financial Wellness Programs

Benefits play a crucial role in attracting and retaining top talent. According to surveys, over three-quarters of workers view benefits as essential when considering job opportunities. 

By offering tangible support beyond traditional salary increases, you demonstrate your commitment to the well-being of your employees. This approach can be more sustainable and cost-effective than across-the-board raises, benefiting both your employees and your organization.

Maintaining Transparency in Pay Discussions

Keeping your team informed about how inflation affects their pay is crucial. Your HR department should be upfront about how the organization handles salary adjustments due to inflation. 

But it's not just about words—it's about action too. Alongside sharing plans and updates, demonstrate the steps taken and act on feedback gathered during discussions.

According to Gartner, close to half of employees prefer hearing about pay matters from their direct managers. However, many managers may feel unsure about discussing pay, which can become even more challenging during inflationary periods.

By empowering managers with the right tools and guidance, you can ensure pay discussions are handled with care and understanding, fostering a positive and supportive work environment.

Closing Thoughts

Remember, a well-thought-out inflation compensation strategy isn't just about numbers—it's about nurturing a workplace culture where employees feel valued, supported, and motivated to contribute their best efforts.

Keep that mindset while incorporating these strategies to not only attract top talent but also cultivate a loyal and engaged workforce, driving long-term success for your organization.