7 Tips for HR: Ensure Employee Engagement during Inflation

We have all felt it. Inflation is soaring, and many things have increased in price. This makes it harder for many of us to make ends meet, and many employees expect an immediate and corresponding increase in wages. In today’s tight labour market, rising wage pressure is one of the biggest dilemmas HR teams face, balancing competitive pay with organisational cost pressures, all while keeping engagement high.
In this post, we share seven practical tips for HR professionals to navigate wage pressure while strengthening employee engagement. You’ll find approaches that balance compensation strategy, communication, internal fairness, and long-term commitment — all with a view toward sustainable people practices.

Wages Become More Important for Employees 

When a situation arises where the development in living costs is greater than the development in wages, it leads to a decline in real wages. This is a situation that many people find hard to accept, and therefore, many expect an adjustment in pay that fully or partially offsets the decline in real wages.

Employees Want Fairness

From Ennova’s ongoing monitoring of employee surveys across companies and for many years, we see that, prior to 2022, wages had a very limited effect on perceived employee engagement.

Now the situation has flipped, and we see an increasing effect directly due to the assessment of the pay. The increasing importance of wages is most often seen when employees experience a lack of fairness in wage determination and development. It could be in relation to the market level for their position, but it could also be in relation to the effort or additional responsibility that the employee has undertaken at their job.

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Some Employees Might Consider Changing Jobs

The expectations concerning increasing wages are also influenced by a labor market that lacks employees in some areas, thus leading to competition for the right competencies. Therefore, many salaried employees find it relatively easy to change jobs, thus safely fulfilling their desire for an increase in wages. Changing jobs would be the right solution for some, but not for all. Here, it is important that employees consider and ask themselves: Are wages very important for my motivation? Or am I experiencing an unfair balance between competence/effort and wage/recognition? If the answer is yes, then it is probably the right time to change jobs.

On the other hand, if you like your work, if it is interesting and helps you develop, and if you have good colleagues and partners, then you should probably give it a second thought.

Why don't Employers Simply Compensate for the Decline in real Wages? 

It is difficult for employers to compensate for the decline in real wages, even though they are facing a big dilemma due to the struggle for resources/competencies.

First of all, companies have a social responsibility, and if they simply raise wages in line with inflation, this will initiate a negative cycle that will lead to further inflation since companies will be forced to pass on their increasing costs to their customers.

Secondly, companies are also experiencing uncertainty due to increasing prices of raw materials, a lack of raw materials, lower consumer trust, volatile stocks, increasing interest, etc. This means that most companies are not willing to change their wage levels significantly.

Finally, employers can argue that wage development should follow inflation since, for several years, the development in wages has been significantly higher than the development in consumer prices. Therefore, real wages have been on the rise for several years. What we are now seeing is an adjustment.

Remain Close to the Employees

Right now, there is a great risk that you will lose some of the employees that are most important to the company or the team. Therefore, it is critical that leaders remain close to the employees. Leaders take responsibility and listen to an even greater degree and, at times, enter into difficult dialogs concerning the drivers of employee motivation and engagement and how the situation can be improved.

HR must make sure that these dialogs are supported at all levels of the organization by a data-driven foundation so that the leaders can always tap into what is most important for the team’s/unit’s motivation and engagement. HR must also ensure that leaders receive general feedback from exit surveys and interviews so that they can consider whether their focus and communication require adjustment.