How CFOs Are Handling Wage Inflation
It’s a workers’ market right now as companies are struggling to fill open positions. The ratio of open positions to those looking for work has hit a record high.
CFOs are dealing with an environment where workers have gained a lot of leverage in overcompensation. In trying to recruit and retain workers, CFOs need to strike a balance between two competing interests — the need to provide adequate compensation and also to maintain profitability. The equation is a pretty simple one, the more you pay, the more you are able to attract and retain workers. But, the more you pay, the lower your profitability.
Here are some steps that CFOs can take to maintain a healthy balance between the two.
1. Monitoring trends in wages
CFOs can regulate compensation better by monitoring shifts in wages. For example, the Employment Cost Index is a guide that is released quarterly by the US Bureau of Labor Statistics that focuses on growth and total compensation for both wages and benefits covering hundreds of different occupations and industries.
2. Planning for different risk scenarios
Annual planning cycles and budgets need to be augmented by taking into consideration scenarios involving various economic risks that companies may be confronted with.
CFOs need to factor in risks to growth from such things as extreme weather, COVID, supply chain problems, and tensions with other countries, which are just a few examples.
Other scenarios that need to be taken into account are government stimulus spending and the actions of the Federal Reserve.
3. Expanding your area
With more people working remotely, companies can more easily hire employees from different geographical areas. One way to cut labor costs is to look beyond the usual areas where the company hires to other regions that have lower average salaries. Companies can then shift some of their payroll to these cheaper areas.
4. Wage growth and productivity
It is easier for CFOs to justify wage increases when they are accompanied by productivity increases. If productivity rises along with wages, there is no loss in profitability.
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