Still having sticker shock making offers, this could be why…

Inflation has been the leading topic following the pandemic and had everyone falling out of their chairs with prices going up across the board from groceries, to cars, to salaries.? In our business, we support various industries but one big area of concern in hiring that has been common across all of them is compensation expectations in the candidate market.

To dive into that, it’s important to define disinflation vs. deflation and review where we’ve come from over the past few years.? Disinflation is defined as the reduction in the rate of inflation, meaning the speed of price increases are slowing (but not rewinding).? Deflation is the reduction of the general level of prices in an economy, describing a decline or negative growth in pricing that retraces to prior lower levels of pricing.? An analogy that fits would be running forward from a sprint to a jog for disinflation but running backwards or towards where you started for deflation.?

In the chart below you can see average wage growth across the U.S. against the trend of inflation.? Everyone remembers the great resignation of 2021-22’ and the sticker shock of compensation, where wages fought to keep up with inflation and hiring demand.? During that time, companies stretched offers and increases in an attempt to keep up with the 9.1% inflation and obtain or retain good talent.? As inflation has cooled (disinflation) from its peak to the recent 3.4% (Dec. 2023), wage growth has remained elevated at 5.2% (Dec. 2023) on average vs. just 3 years prior at 3.8% and slightly above the correlation in Jan. 2020 (deflation or negative inflation on this chart would be represented by the trend lines crossing under the 0% line).

The rate of inflation, growth and turnover had most employers struggling to keep up and, in the aftermath, the psychological effects and implications of inflation can take a few years feel normal again. Pay transparency laws in some states have helped provide visibility but many companies are still working through the after-effects in order to offer competitive salaries vs. where market expectations are today. It's fair, we all remember a time when things didn't cost as much and it was only a few years ago!! As an example, if you made $90,000 in 2020 and just kept up with the average wage inflation, your salary in 2024 should be around $106,801 (not including promotions, etc.).? This is compared to about $97,418 at the previous standard 2% increases YoY in the same timeframe.? From a recruiting perspective, if you reach out to a happily employed prospect about an amazing new opportunity, the expectation is typically around a 10-20% increase (total compensation but many candidates look more on base salary).? Which means in 2024, you would need to make an offer around $117,481 on the low end to incentivize that same candidate to consider the opportunity. Of course, all circumstances, markets, types of positions, experience levels, and motivations, etc. will vary but this is just an example for conversation to visualize the effect wage inflation has had on the market.

As a business, how do you overcome this challenge when working with your internal or external recruiting teams?? One word, flexibility!? There are strategies to help manage through these challenges with HR teams and business leaders but you may not have the time to navigate those exercises.? The quick and immediate options you have at your disposal when hiring externally are to either pay to market or reduce the amount of skill/experience required by identifying wants vs. needs, and investing time and resources for development.? Both have advantages but in times of budget constraints, the latter is typically the chosen option for many positions.? For example, do you need 7-10 years of experience or could 3-5 years of experience work?? Do you need specific system or software experience, or could you focus on the core skillsets and provide training?? Keep in mind, rarely will someone have everything required in a position and there will always be a learning curve to a new company and position.? For these scenarios, focus on past achievements and learning agility (a.k.a. intelligence and grit) through behavioral interview questions.?

In closing, I will insert an appropriate reference from the lyrics of a band you may recognize--The Rolling Stones, who said it best, "You can't always get what you want, but if you try sometimes, well, you might find...you get what you need!