C-Suite Agenda

How Can Executives Manage Rising Labor Costs?

Kara Hertzog, M.Ed.

Today, the item at the top of many executives’ lists is rising labor costs. To help employees stay afloat among increasing costs of living and keep them engaged, leaders are adjusting compensation. However, that leads to more business costs. So, how can company leaders manage their costs and invest in their talent? 

Business leaders are keeping an eye on rising labor costs. Although some might be burying their heads in the sand, most are facing the issue. In fact, 63% of executives surveyed by Gartner were planning to adjust compensation in some way in response to inflation. One of the major reasons for this is to help their workforces deal with the rising costs of living.

These leaders know that the effects of the Great Resignation are far from over. With many workers facing uncertainties and needing to go after competitive salaries to make ends meet, leaders know that getting serious about fair pay makes sense.

There are benefits of increasing pay now and taking time to really consider how to help employees with inflation. For a start, it is almost always cheaper to retain talent than it is to find new talent — even if that means a significant increase in wages for current employees. So, should companies give raises for inflation? Not necessarily in every case, but it’s worth taking the time to analyze the fair market value of your employees’ contributions and see whether investing more in your people, rather than less, could help you ride out the storm more successfully.

How Can Businesses Balance Rising Costs?

Employees aren’t the only ones feeling the pinch of inflation. As the need for higher pay increases, so do the other costs of running a business, including transportation, logistics, and materials. There are very few areas that haven’t seen rising prices this year.

What’s more, employee wages aren’t the only labor cost that businesses have to budget for. Outsourced labor is more costly now, and health benefits needed to keep labor well and working are also rising. For example, according to Mercer’s National Survey of Employer-Sponsored Health Plans, health benefit costs were expected to rise 4.7% on average this year compared to 2021. They’re predicted to rise 5.6% next year.

This gauntlet of rising costs is taking its toll on even the most established and successful businesses. Managing rising costs is one of the biggest strategic challenges businesses have. So, how can you stay afloat, cut costs, and invest in talent engagement and well-being to keep a competitive advantage?

No business is immune; companies all over the world are cutting personnel. A spate of tech layoffs arrived in August 2022. As of mid-October, more than 44,000 U.S. tech workers have been laid off. And in a world that is laying people off left, right, and center, it might actually be wiser to keep a hold of the talent already in your workplace. That is if you can balance the cost of keeping them and keeping them happy.

How Can Leaders Save Profits and Keep Talent at the Same Time?

As you figure out how to manage labor costs and how to help employees with inflation, there are strategies you can implement to counter-balance your investment in talent:

  1. Automate wherever you can.
    To make investments like pay increases feasible, you need to scour your company for potential ways to cut inefficiencies, time-wasting, and unnecessary costs. Automation is key in times like this. By automating redundant tasks, you can save money, overhead, and human hours and, most importantly, free up talent to focus on challenges that engage and stimulate them, so they’re more likely to get fired up to come to work.
  2. Find new forms of compensation.
    You don’t necessarily have to break the bank and reward loyal talent with extra zeros on their paychecks. You can increase compensation in other ways. You could give monthly or quarterly bonuses, give your employees gas cards if they are commuting, or offer other perks that are meaningful to them. Even if you do think a raise is warranted, you could try giving small raises each quarter and continue to analyze the market to see if more significant raises make more sense.
  3. Find other ways of hiring.
    If feasible for your company, you could consider transitioning to a remote workplace to save on lease payments or moving to a hybrid model and subleasing part of your space to help supplement bills. Or, instead of hiring more full-timers, consider hiring contingent workers or freelancers that can ebb and flow with the workload. Now’s the time for bold changes.The bottom line? Many people believe that we need to combat rising labor costs by cutting personnel. But other ways of cutting costs and maximizing profits could be more sustainable and bring more success.

So, get creative. Collaborate with your executive team on ways to cut costs. Are there software licenses you aren’t using anymore? Are there overheads that are outdated? Cut the easiest costs first, and then see how much you can push the needle on employee motivation and retention.


Written by Kara Hertzog, M.Ed.
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Kara Hertzog, M.Ed.
Kara Hertzog is president of Innovative Employee Solutions (IES), a leading global employer of record in more than 150 countries that specializes in payrolling and contractor management services for today’s contingent workforce. Kara received her Bachelor of Science degree in Business Administration – Management from Villanova University in Pennsylvania, and her Masters in Education from Chestnut Hill College. Kara’s colleagues describe her as genuine, with an abundance of curiosity and a contagious laughter that can be heard down the hallways at IES.


Kara Hertzog is an opinion columnist for the CEOWORLD magazine. Connect with her through LinkedIn.