Inflation in the US is currently at 7.5%, the highest since February 1982. The impact of inflation on compensation in 2022 should be substantial as a result.

As an employee, your total compensation should increase more than it has in the past to account for the rising costs of inflation. Here’s exactly what to expect and what to do if your compensation isn’t keeping up.

Impact of Inflation: Recent Trends

Statistics and findings across various metrics illustrate the impact of inflation on compensation. Here are a few.

As of January 2022, the CPI is up 7.5% year over year. Gas prices rose 40% over the last year, and food prices increased 7.4%.

While the CPI measures a fixed consideration of goods, the personal consumption expenditures (PCE) index considers people's changes in response to rising costs. Thus, the CPI tends to report higher inflation. Even still, the PCE index is up 5.8% from December 2020 to December 2021.

Impact of Inflation on Compensation

As an employee, you should expect significantly higher compensation increases into 2022 to help you keep up with the rising cost of inflation. Here are some predictions.

We know the dramatic increase in the cost of goods is pushing wages higher. As of December 2021, wages in the US increased by 9.16% YOY. US salaries are projected to grow 7.9% by the end of this quarter and 4% in 2023.

Being aware of these projections means you can keep your employer on track. If they aren’t offering you a pay raise, it’s time to ask. If employers fail to stay competitive with their increases in compensation, it’s well within your right to seek a job elsewhere.

What to Look for and Actions to Take as an Employee

The impact of inflation on compensation will be significant this year. Here’s what to look for as an employee to ensure you’re paid fairly (and what to do if you’re not).

1. Retention and Sign-On Bonuses

Professional and management-level jobs are in high demand right now. To stay competitive, companies are offering significant retention and sign-on bonuses. What’s more, this is an employee’s market, meaning you have more bargaining power. 

Retention bonuses often range from 10-25% of an employee’s base pay, so expect to be on the higher end of that. Alternatively, sign-on bonuses can be anywhere from 5-25%. You’ll again want to look for the higher end of that. 

2. Do Salary Research

Use sites like Glassdoor’s Salary Index or Salary.com to see what your company’s competitors are paying – you can also look at how these salaries have been adjusted due to the impact of inflation on compensation.

If you find your pay is lagging behind that of other companies, you have two options:

1. Talk to your boss about a pay raise
2. Look for a job elsewhere

Unless you want to leave your current company for other reasons, it’s best first to express your grievances to the boss and ask for a raise. 

3. Know How to Ask for a Raise

If your current employer isn’t outrightly offering competitive pay raises in times of high inflation, you’ll need to ask.  Although asking for a raise can be stressful, here are some tips.

1. Come prepared. Conduct detailed salary research and present people's wages in your position at other companies (including direct competitors).
2. Know your worth. Use specific performance data to demonstrate your value as an employee. Remind your company why they should be motivated to keep you on board.
3. Timing. If possible, time your ask correctly. After performance reviews, completing essential projects, or when you’ve done something to impress your manager are all great times to make the ask.
4. Get specific. Don’t leave room for guessing. Based on competitor salaries, the impact of inflation on compensation, and your performance, ask for a particular number. Ask for a bit more than you’d settle with to leave room for negotiation.
5. Act the part. It’s not what you say but how you say it. When you enter this conversation, be confident, be enthusiastic about the company and your work, and express gratitude towards your manager and your opportunities at this organization.
6. Expect the unexpected. Pay raise conversations often come with questions about your performance and negotiations on the final number. Be ready for those.

4. Know When to Look Elsewhere

If you graciously asked for a pay raise that keeps up with the impact of inflation on compensation and it was denied, it may be time to hit the job market. 

Importantly, you want to stay engaged and continue to perform well in your current role throughout the job hunt. Doing so keeps your current company’s impression of you positive, which will only serve you in future roles.

Talk with your network and see if anyone you know is hiring (or knows someone who is). Having a direct connection makes getting another job easier.

You should also take the more standard approach of looking through job openings, updating your resume, and sending it in. 

Are you a senior leader whose salary is lagging? Jennings Executive can help place you into a better role where you’re paid what you’re worth. Learn more today!

When the time comes, make sure to draft an appropriate resignation letter and leave your job on a positive note.

5. Inflation’s Return to Normal

Employers may be holding back on significant increases in compensation because they believe inflation will return to normal shortly. It’s impossible to say which viewpoint is correct: is inflation transitory or not?

Thus, if you’re happy at your current company for all other reasons but feel your pay isn’t keeping up, consider seeking a bonus instead. Companies who believe this high degree of inflation is transitory will offer bonuses, as those are one-time.

Final Word

The degree of inflation we’re experiencing right now is at record highs. The impact of inflation on compensation should be significant in 2022, and you as the employee have power over what you’re paid in a market like this.

We hope these tips help you earn what you deserve. And, if you still aren’t sure and want to look for roles elsewhere, Jennings Executive would love to help!

Related: Your Comprehensive Guide to Counter Offers: What Are They, and Should You Accept?

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