How 2 Navigate Wage Inflation – Round 2

6 months ago, staff wage issues were centred around the impact of covid and the great resignation as SMEs increased salaries to attract and retain staff – with two business owners telling me at the time that they had to pay 5 figure increases to retain a key retail staff member and the other a vital PA; increases that would normally have taken at least five years to achieve.

But as we all know the world has changed and changed again … first we had Brexit, then Covid, and now War further increasing the cost of living for your staff on basic items like cooking oil, bread, and essential items like fuel, gas, and electricity – with further heating hikes to come in the next 6 months.

And there’s little comfort for business owners knowing that most of the advanced economies in the world are facing predicted rises in inflation at levels not seen for decades – that’s far too remote for those currently contemplating a second or third increase in their wage bill in the last 9 months.

Wage inflation will hit your bottom-line FACT – by how much depends on what you do to protect your bottom line and more importantly your people. That’s if your business depends on people and you adopt the mantra that business is all about people and you acknowledge that your business is only as good as your people. Then your people must be insulated at the very least from these inflationary pressures.

We just gave every F/T member of staff a £1000 bonus, pro rata for part timers. It was an extra top up over the Christmas bonus based on last year’s profits rather than being based on fuel increases etc, but increased cost of living was a consideration in the timing.”

Manufacturing MD

Obvious insulation can come from – repositioning your own pricing, restructuring your delivery options, developing new products, enhancements, or specification changes. Increased automation to save time and release time for greater value add activities not just to cut jobs, shortening supply chains by shopping local, and letting go of unprofitable lines no matter how attached you are to them. In short, a root and branch review of your People Product Process.

All of which helps but it doesn’t help staff with today’s heating bills. That will require all your emotional intelligence not just hard facts and numbers to ensure you secure both customer and staff relationships for the longer term once this external pressure has subsided or at least is more controllable within your business.

We gave an inflationary increase to all staff in September last year averaging 10%. This was the first increase for 2.5 years. We worked out through RPI change we would have had to give at least a 6% rise to ensure their wages matched 2.5 years ago. We increased it to 10% as a reward for loyalty and to incentivise staff to stay. Looking at RPI now we would have to give a 10% rise to match 3 years ago so the extra 4% we gave in September for loyalty has already been eroded. Hence, we will probably need to give a 3-4% rise this month in order to maintain the value of our staff’s wages.

Retail Business Owner

Wages and benefits are one of an SMEs biggest cost and in today’s inflationary climate one of the biggest draws for new recruits BUT do not underestimate the attraction of an attractive culture that allows an employee to restore some post covid work life balance… After all you can’t keep signing off salary increases every six months or so.

In one financial-services company, leaders increased salary ranges by 15 percent to try to keep employees from leaving, but attrition levels stayed the same. That’s because the company had not addressed concerns about untenable hours and high-pressure assignments, nor had it acknowledged the churn going on within the industry…To rebuild relationships and retain current employees while attracting new ones, CEOs must guide their companies to take a new approach to talent.


At the start of the year, I was supporting my client businesses with a framework on how to deal with supplier price increases – a framework, that with a little license, can now be applied to navigating the current round of wage inflation affecting SME businesses.

10 Navigation Pointers for Wage Inflation:

  1. Understand the impact on your team of applying the wage increase.
  2. Prioritise your exposure on your key people within the business – losing key people can create unintended consequences, such as negative customer perceptions & lost sales.
  3. Understand which jobs are facing the greatest wage inflation.
  4. Remember the media headline inflation costs do not apply to or affect everyone or every sector the same way – get to understand individual pain points.
  5. Leverage your staff relationships, by keeping your dialogue honest and transparent – this will help minimise staff resignations and strengthen the bonds between you.
  6. Offer carefully designed performance incentives to retain and reward staff.
  7. Give wage increases only when you are fully aware of their impact on your bottom line.
  8. Seek win win payments.
  9. Losing key staff for the sake of a principle or a double-digit percentage increase could well cost you more in recruiting a replacement.
  10. Wage inflation will hit your bottom-line FACT – by how much depends on what you do to protect your bottom line and more importantly your people.

In Summary

  • Don’t just accept it without doing your homework.
  • Have the conversation with your staff.
  • Consider the alternatives.
  • Be decisive and move on.

Since 2013 I have been helping ambitious SMEs with their Strategic and Leadership challenges.

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Posted in Company Culture, Values, Engagement, leadership
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