Many employers not well prepared for ongoing inflation
18/02/22
Five-step plan to deal with inflation
The big question for organisations is whether the sky-high inflation rate of over six percent will continue in the coming months. It is expected to continue for the foreseeable future. Companies are not yet sufficiently prepared for this scenario. The labour market is short of personnel because many people in their sixties are reaching retirement age. This will lead to considerable wage increases, which may cause organisations to run into problems. Directors must make a plan as soon as possible in order to be prepared. PwC has a five-step plan to help organisations on their way.
Labour market in uncertain times
After the initial lockdown, the economy rebounded surprisingly quickly in 2021. But as society opens up again, supply chain struggles and limited gas supplies have led to high inflation.
The inflation spectre is expected to persist for some time. Central Bureau of Statistics (CBS) calculated that the current inflation rate is largely due to the limited gas reserves. But in the somewhat longer term, the energy transition will play a major role. This will lead to higher energy prices. That is not the only danger for the business world. Especially the labour market will be subject to inflation. Many people in their sixties will be retiring in the coming years, but the group of people in their twenties entering the labour market is much smaller.
Scarcity on the labour market: considerable wage increases
The scarcity in the labour market leads to structurally considerable wage increases. The European Commission expects this to have consequences in the Netherlands as early as 2022. The trade unions are betting on a sturdy five per cent wage increase, while shareholders expect to retain their returns. After all, with rising inflation, their own returns are also under pressure. Add to that the new pension agreement, which will result in even higher wage costs in the coming years.
The strategy of most Dutch companies is based on the temporary inflation scenario. But that is dangerous. If inflation turns out not to be a temporary phenomenon and it works its way into wage costs, many organisations will immediately run into problems. This particularly concerns sectors where margins are low and rising costs cannot be fully passed on to the customer.
It is therefore essential to also explore a scenario of structural inflation. This is not a subject for the negotiating table with trade unions, but a structural, strategic challenge that belongs in the boardroom. After all, the organisation's earnings model will come under pressure for a long time.
Five steps to withstand inflation
1. Consultation with the 'golden triangle'
The 'golden triangle' of management board members, supervisory board members and employee representatives proves its added value in this area. In this consultation, the long-term earnings capacity of the company must be linked to the development of the workforce and wage costs, now and in the future.
2. Map out personnel needs
It is wise to examine what the future composition of personnel looks like. This can be done through 'Intelligent Rightsizing', which looks at the skills employees need for your organisation. This way, you know as an organisation whether employees need extra training in order to master skills faster.
3. Modernise employment conditions
Expensive employment conditions, such as pensions, are not always appreciated by employees. New technology, forms of cooperation and/or leave arrangements enable organisations to design an optimal and affordable package together with their employees. This approach counters the one-sided focus of trade unions on the primary income, and it does not have to cost more.
4. Increase employability
The modern employment conditions package is much more focused on development, involvement and sustainable employability of employees. But organisations now have insufficient insight into the production loss due to unwanted outflow and absenteeism. This is something that can cost them dearly in times of need, when productivity must be maximised.
5. Modernise HR
Although dealing with inflation is not purely on HR's plate, it can help pass it on. To contribute to the above points, it is important that the HR organisation has an analytical and preferably predictive capacity, along with strong specialists and business partners to guide the organisation and its employees.
Contact us
Follow us
