Ayesha joined my readership recently and asked :
“I would love to hear some suggestions on what to do when market inflation rates are far higher than what the official sources as well the generally accepted sources like the The Economic Intelligence Unit magazine report… and we have to convince the organization to allocate higher increment budgets that reflect the reality.
It can be a very tough one if you are already lagging market salaries.”
Many years ago, when I was working at Microsoft for example, we were facing this kind of situation, for example in Turkey or Nigeria.
The issue with emerging markets is that the inflation information coming from official sources tend be undervalued. The country Central Bank and local government sometimes have some form of interest in announcing inflation rates that are lower than the reality perceived by citizens and residents, as inflation may tie into getting or reimbursing loans from international institutions, overall credit rates and other international rankings.
So what do you do when The Economist Intelligence Unit and the official government and international institutions announce inflation rates that are way below what the perceived reality is, and you need to convince management to look at other figures and allocate a salary review budget in line with actual inflation ?
Remember, your goals is not to convince management that inflation is higher than the official numbers. It is to convince senior management to grant salary increase budgets that will allow your organisation to remain competitive in the market place so that you can attract and retain the quality employees that your organisation needs in order to deliver on its business goals and, quite simply, to remain in business.
So, mostly, you need to think a little outside the box and take the discussion away from the EIU or Central Bank / World Bank / IMF numbers and place them into a larger context. Here are a few things you can do.
Step 1 : Find other credible external sources of information for inflation
Chambers of Commerce will tend to produce information that is more in line with what the local population experiences. Why is that so ? Because the local companies that are part of the Chamber of Commerce are rooted in reality and need to know these numbers in order to see if they need to adapt the prices of their products and how much of an increase in their raw goods they should expect.
CPA (accountant) networks and other local or regional business networks may also have some useful data for you to use.
You may also want to check with international mobility data providers such as ECA, ORC or AIRINC. These companies monitor the evolution of various baskets of goods and services for their clients to use when sending international assignees from one country to the other.
Step 2 : Find internal sources of information on price increases
Guess who may be able to confirm to you that prices are going up at a higher rate than the official inflation ? Your procurement team. It is their job to source the materials and services that your organisation needs, at the best price possible. They will be a dependable source of feedback to senior management about how prices are moving in your market and will probably be able to support your comments on inflation.
The other internal team that may have some of that information is the product pricing department in your marketing team. Their job is to determine what a good price is for your company products and services. So, they monitor competition’s prices and will be able to tell you if those prices are going up.
Step 3 : Collect salary review budget information
As I said above, remember your main objective : obtain a realistic budget for your salary reviews.
Local HR networking groups will often collect and communicate this kind of information. You can also find information from recruiting companies and business magazines, although I don’t recommend fully trusting their validity.
The classic salary survey providers will provide salary increase trends. You will also get from them your current position to market (if you have participated to the survey), which will clearly indicate if you are lagging behind market in terms of pay.
Look into the Cost of Living increase or collective/general increase information. This component of pay review is often present in countries with relatively high inflation as it is distributed uniformly across the company in order to maintain the purchasing power of staff salariesand is not related to individual performance.
One metric I like to receive is a special cut with only information for people who have been hired into the participating companies in the last 12 months. Their salary information will tell you more about the current market values for hiring than the overall data, which can be influenced by large amounts of employees who have remained in their position for a long time and may be paid significantly more, or less, than the people who are currently changing jobs.
Finally, the resourcing team in your company will also be able to let you know of current candidates’ salary expectations and potential difficulty to hire – information which you may be able to back up by comparing new hire salaries to the salary of their peers in the same positions and who have been in the company for more than a year.
Step 4 : Prepare your request to senior management
Collect your key points and present them in a compelling manner. Transform all that data into intelligence and tell executives a pressing story about competitiveness, not of salaries but of the business.
Did you lose some key members of the organisation because of lagging salaries recently ? Was a project slowed down and a new product or service delayed because you couldn’t staff the project team with the right people in a timely manner ? Does your employee engagement survey highlight new restlessness among your employees that makes you anticipate future resignations and therefore an impact on the business ?
Support that story with your facts and some simulations of costs demonstrating affordability of the request, and, well, it’s out of your hands and for senior management to decide. But you will at least know that you have done your absolute best in order to influence the final decision.
Do you have other tips to share on how to convince management to look into real inflation data and come up with appropriate salary review budgets ? Don’t hesitate to share them in the comments !
Related posts :
- Compensation Data vs Compensation Intelligence
- 4 skills to master for influential Compensation & Benefits
- How do you express the value of your compensation plan ?
Shouldn’t we rather use cost of labour approach, where market movement, rather than inflation is used as the primary driver in salary adjustments?
Inflation should never the be the only driver of preparing budgets for salary increases. Of course, market movement, but also company position to market (actual vs targeted), affordability, salary compression and other factors should be taken into account. See my article here for example : http://compensationinsider.com/reader-question-what-to-consider-for-salary-planning/
In countries where there is high inflation or even currency devaluation you will never get away from discussions around inflation, because employees do feel the increase in cost of living directly impacting their wallet. Even if inflation is not your main driver for establishing the salary increase budget, you need to be ready and aware of what inflation really is – and sometimes, that means relying on numbers other than what the official inflation rate is in the country. In that case, I hope this article helps you make the best use of the information that’s available to you 🙂
Inflation is a very unreliable measure for salary movement. See this article for a detailed explanation why: https://internationalhrforum.com/2011/02/28/what-about-inflation/
I agree Warren, it should not be the only criteria when looking at salary review budgets. But it’s even worse when management only looks at an artificially deflated inflation number from official sources.
Thanks for sharing the link to your article, I always enjoyed your posts and hope you would continue this blog !