Inflation: Pay Fairness Perception and How to Bolster Them

Inflation is raging through Malaysia’s economy at the moment. According to DOSM (source), in April 2022 alone, consumer price index in Malaysia has raised at least 2.3% YoY, and is geared towards even higher by upcoming months. With renewed data since April, many economists believe that Malaysia’s core inflation has surged to an almost five-year high, with many basic necessities recording a price increase between four to 10 percent accordingly (source).

When we look into labour data published by Labour Market Information and Analysis (ILMIA) together with DOSM, it suggested that businesses have closed down on many vacancies over the year 2021, with job openings trending downward in Q1 2022 (source). What this translates into is that most businesses is now completing the job offering post COVID shutdown and is on the track to recovery.

DOSM statistics shows that job openings are lowered in Q1 2022, and expects downtrend to continue in Q2 2022.

While many employees are taking advantage of these new job opportunities, with inflation at a record high rate, employees are effectively making lower “real wages” despite a rise in minimum wage. This is evidenced by the recorded inflation rate versus the meager 3% average increased wage for Malaysia from 2021 to 2022 (source).

Many Organizations Does Not Plan to Adjust Pay for Inflation, Citing MWO as Primary Cause of Inflation Itself

National Chambers and Commerce and Industry of Malaysia (NCCIM) has echoed that raising the minimum wage that high itself is the catalyst to the record high inflation (source). As many businesses are facing substantial increases in business costs, worker shortages and cautious consumer spending, many organizations do not want to risk making long-term changes to pay when inflation could be lower in the future. 

However, not adjusting pay to match inflation by itself too, could be a risk. According to Isaac Song’s article here, when the goal of employees misaligns with organizational goals, employees would simply seek out for other opportunities; in this case, employees perceive a solution towards inflation through better paying new job opportunities.

Not All Organizations Can Choose to Adjust Pay

It’s not a simple fact to just adjust wages to match inflation if leaders want to prevent turnover. Many organizations in Malaysia are still reeling from post-COVID recovery and the war chest is still running low. On this front, transparency and pay equity will be the biggest challenge for organizations. Still, leaders can minimise the impact on turnover by addressing employee’s wages concerns clearly and frequently. Leaders making a conscious and transparent effort to clarify the factors that go into determining salary ranges will help their staff feel more secure about their pay in the long run. Therefore, the strategy to help leaders making this effort is three pronged.

#1 – Prepare Managers to Communicate About Pay

Not all managers are equal. Some of them are very people person, and know how to manage queries from employees regarding pay, and how to respond accordingly. Some of the managers on the other hand, while excellent in planning and strategizing type work, often lack socialising skills. Employees would rely on their managers to get direct feedback about pay often, and if asked about wages in relation to rising cost of living, many managers would probably fail in addressing this effectively.

Instead, leaders should prepare managers to have these kinds of conversations in three steps:

  1. Identify employees likely to have concerns. This allows managers to develop thoughtful responses.
  2. Empathy. Pay is a sensitive area, but so are dismissive answers with no emotions. Managers should exercise empathy when addressing pay concerns, and how to assist employees who are emotional due to the pay issue.
  3. Focused conversation. Having discussions about wage can be overloading. Not only do managers need to think about personalised responses to each employee, but concurrently they have to understand the predicament of every employee who raised the same issue. To better prepare managers in this space, communicate to managers exactly what they do and don’t need to be prepared for. 

#2 – Proactively Address Employee Concerns 

Whether employees are being paid fairly or not, inflation or otherwise, their perception of the matter greatly influences their decision to stay or go. Rather than waiting for questions from employees, proactively address potential concerns, in particular where misconceptions exist about disparities. Help employees understand what they would make in another job or how their current pay compares to the market. 

When the pay transparency framework is being implemented, this helps employees in understanding how their compensation fares against the wider market and renders assumptions that the grass is greener on the other side null. 

#3 – Broadening “Compensation” Definition

Some leaders have considered a one-off payment to stave off staff departure due to inflation. However, a one-time bonus doesn’t necessarily lock employees in. Leaders should take a multi-step approach in enhancing employee experience, such as offering, wherever possible, flexible or hybrid work arrangements, development programs, increased paid leave, better insurance benefits and et cetera. Offering employees a barrage of benefits can cost less than raising wages, rehiring and retraining employees. Leaders should determine and listen from ground level on which programs most appeal to each of their company’s demographic segments, and deliver those with highest return on investment.

%d bloggers like this: