Senior Client Partner
The ‘Humane’ Way of Handling Inflation
Remember the old days, when companies would simply pass on higher costs to customers? The price of wood would rise by 10%, and shortly thereafter the price of wooden widgets would rise by 10%. Simple. The entire 1970s Consumer Price Index was driven by this principle.
Today, this just-pass-it-on principle may be imploding. Many companies have already upped their prices by 10% to 30% in recent months because of the massive supply chain upheaval and are realizing they will lose too much business if they pass along more price hikes. What’s more, in the era of the purpose movement, firms are being encouraged to address employee and customer concerns — and inflation is causing many of these. Already, common foods like fish, eggs, and meat are up 12.5% since December 2020, and gasoline is up 49.5%, creating tight squeezes for consumers.
In response, some firms are searching for ways to battle inflation without pummeling employees and customers alike. Experts say some companies, for example, are delaying further price increases on important staples or sourcing goods from less expensive suppliers. “Prices are more likely to be increased on products people want but have choices about, such as steaks vs. ground beef,” says Craig Rowley, a senior client partner and leader in the firm’s consumer sector. But he adds that such businesses have limits since they are low-margin operations. “Retailers don’t have a lot of room to absorb increases from vendors,” Rowley says.
Internally, the instincts of leaders at some firms is to help workers cope with inflation by raising salaries. “But it’s a tricky scenario because it’s circular,” says Juan Pablo González, sector leader for professional services at Korn Ferry. “Raising compensation ultimately just increases the cost of goods for customers. It’s a real chicken-and-egg challenge.”
Experts say firms could use the current inflation rate — which has risen to its highest level in four decades — as an opportunity to earn goodwill. “This is the moment to be people-centric,” says Divina Gamble, co-leader of the Nonprofit practice at Korn Ferry. “That ultimately goes for how you treat employees, customers, and the public in general. Leaders have to really show that they’re investing in their people and that it’s not just about money,” Gamble says. Firms, experts say, may raise prices, but may want to cite a purpose that improves people’s well-being, along with corporate profits. Gamble gives the examples of a restaurant transparently adding a 5% surcharge to cover rising pandemic-related costs. The messaging for employees and customers alike is that the company is taking care of its staff. “People are more likely to go back and continue to wait in long lines when they see that there’s this kindness factor,” says Gamble.
At the same time, many companies are internally reviewing their compensation strategies. “You should use the main tool you have — merit increases — to help struggling employees, and many companies are,” says Nathan Blain, global lead for optimizing people costs at Korn Ferry. One broader solution, he says, is to avoid taking on costs while helping employees financially, such as by negotiating corporate discounts for employees on everything from cell phones and grocery delivery to gas and transportation. A company with thousands of employees can often command excellent rates for their employees. Food, fuel, home, and health costs are the categories to consider, he says. Health is the easiest lever to pull, he notes, because companies are already negotiating healthcare expenses with insurance companies.
Another people-centric low-overhead way to humanely address inflation is to try to improve the finances of both employer and employee. “I’m hearing our clients talk about looking to provide professional development for employees and reformulating their workforce strategies,” says Craig Stephenson, managing director of the North American CIO and CTO practice at Korn Ferry. These can be win-win options, potentially lowering both commuting and office lease costs as well as upskilling employees so they can then be promoted into higher-paying roles.