The modern economy is highly uncertain, with inflation and rising interest rates cutting into bottom lines everywhere.
Employers are nervous as the cost of capital and the cost of their inputs seems to rise every day. But employees are nervous, too. And since no one knows when inflation will end, it’s difficult for anyone to make a long-term plan.
In an inflationary environment, this can be challenging. A survey published by Mercer in April 2022 found well-being benefits costs ranked eighth on the top risks facing organizations today. But employees may be struggling to pay their own bills, make mortgage payments or even save for retirement when financial markets are so uncertain.
Even if employees are fortunate enough to be able to continue to save, they’ll still be worried about the uncertainty that now clouds their financial future. Employers are in a position to help — in ways that are financially savvy and don’t overly impact the bottom line.
- Communicate early and often
Employees are fully aware inflation is hitting their pocketbooks. For employers, this is both an opportunity to demonstrate action and to demonstrate empathy. Companies can show workers they understand the issue and that the organization faces similar challenges, as well as commit to transparency to employees at every level to find a mutually beneficial solution.
- Empower employees with knowledge
Employees with defined contribution pension plans may be concerned to see their account balances fall — and those close to retirement, who may be conservatively invested, may be more exposed to inflation risk. Employers will need to consider the impact of inflation on employee retirement plans and how this impacts talent strategy.
Employers can prove to employees they care about their well-being by empowering workers with knowledge and looking to improve their financial literacy. Companies should demonstrate that markets correct from time to time while educating employees about the different investment options available in their DC plan, along with the different risk and reward profiles that suit their specific life stage.
While defined benefit pension plans are presently well funded with negative returns offset by a steep rise in bond yields, the funded position of these plans is expected to be very volatile in the coming months.
Individual employees with DB plans, however, will be exposed to the degree that payments are linked to inflation. Employers should be fully transparent and inform DB plan members and retirees of the options available to them to deal with the present economic environment.
- Lean into well-being programs
In the April 2022 survey, Mercer found Canadian organizations ranked talent attraction, retention and engagement as their No. 2 risk. Inflation is happening at the same time as a labour shortage, which means employees may be more motivated to weigh their options.
While increases in compensation may be off the table for financial reasons, there are other ways to improve employee retention. One example might be implementing a comprehensive well-being program that aims at supporting employees’ overall wellness through benefits like virtual mental-health coaching, sleep assessments and access to discounted voluntary benefits like car or pet insurance.
- Focus on value
The survey also found increasing benefits costs — due not just to inflation, but also the rising number of claims — are a key risk. Claims related to mental health in particular have increased markedly since the beginning of the coronavirus pandemic and are expected to accelerate. However, only 31 per cent of organizations said they have an effective cost containment strategy.
Employers can manage this risk through periodic audits to eliminate costs, ensuring they’re abreast of legislative changes and creating a plan to redesign programs for value by spending dollars on what their employees value most.
Fortunately, it’s not all bad news. A 2021 survey by Mercer confirmed the more benefits offered to employees, the greater their loyalty to their employer. As inflation continues to weigh on employees, adding the right well-being and financial support will improve the resilience of workers and employers’ bottom lines.