The ‘Salary Squeeze’: How the Workforce Is Weighing Compensation

Almost three-quarters of employees are concerned that cost-of-living expenses are outpacing their salary, according to research from consulting firm Korn Ferry.

That “salary squeeze” is making significant life milestones seem unattainable for many of today’s workers. Based on the feedback and current salaries of 1,065 polled U.S. workers, career resource platform Zety found that:

50% don’t feel able to start having children, or to have more children.
40% can’t save for retirement.
37% are unable to buy a home.

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If Workers Feel Squeezed, Reinforce the Sum Total of Your Rewards

“Workers feel that the cost of living, and especially the cost of real estate, have taken away parts of the American Dream,” said Jason Adwin, a compensation and career strategies practice leader at HR and benefits consulting firm Segal. “People are saying, ‘Maybe we are the generation that won’t have it as good as the generation before us,’ which really has never happened in American history. That discontent is real.”

A Worrisome Workplace Impact

According to Zety’s report, these worker concerns may have a trickle-down effect on employers and the workplace:

90% of surveyed employees said their emotional well-being is regularly affected by their finances.
70% feel disengaged at work due to their current salaries.

Additionally, Korn Ferry found employees who felt their salary wasn’t keeping up with the cost of living were more likely to leave their role within three months. On the flip side, employees were more likely to stick it out in a job they hate if the money is good enough.

But by doing so, it ultimately can lead to the same dissatisfaction and engagement as that experienced by workers who aren’t making enough for their living expenses, said Jasmine Escalera, a career expert at Zety.

“When people feel financial stress and their performance is impacted, it means they’re not collaborating the same, they’re not being as innovative, they’re potentially not as ambitious or motivated,” she said. “If we’re looking to be innovative and creative and to hit our goals, we have to be thinking about the employee and what’s going on with them — not just in terms of their tasks but their overall well-being, which includes financial well-being.”

The Weight on Employees

When budgets get tight and the gap between salaries and cost of living grows, any one additional factor — such as the rising cost of gas for an employee who needs to commute to work — could be enough to prompt workers to look for a new role that pays even $1 or $2 more an hour, said Ron Seifert, the North America total rewards leader at Korn Ferry.

Continued increases in healthcare costs also have chipped away at take-home pay and retirement contributions, affecting lower-income workers most aggressively, said Monica Martin, a global total rewards solutions leader at consulting firm WTW. A recent WTW survey found 42% of polled U.S. workers live paycheck to paycheck, and 39% said they have financial problems that negatively impact their life.

“There’s a calculus involved here when you have healthcare rates increasing by double digits and the employee cost-sharing component increasing proportionately,” Seifert said. “Companies are stepping back and asking, ‘How much can we reasonably expect our lower-paid employees to bear?’”

Escalera noted that workers struggling to make ends meet also are more likely to look for a side gig to close the financial gap, which could mean even less time and energy to spend on family and hobbies, and even more stress being brought into the workplace.

“If you already have a stressed and strapped employee, and they go out and acquire more work, they’re adding even more stress to their plate,” Escalera said. “If you’re being competitive in terms of salary, consider what else you can do to support your employees. If you’re not sure you’re offering a competitive salary, do a compensation analysis and figure it out. You want employees to feel like they only have to work their 9-to-5, not their 9-to-9.”

Communicating the Total Rewards Package

While a majority of surveyed workers are worried about cost-of-living increases, Korn Ferry found 66% believe they are compensated fairly based on their skills.

Even when an organization pays what is considered a competitive salary, its workforce may continue to struggle financially, Escalera said — whether due to working in a higher cost-of-living area or individualized circumstances such as debt, student loans or medical issues.

Ensure your employees understand the difference between cost of labor and cost of living, Adwin noted. At the same time, don’t skimp on clearly articulating the employee value proposition. That way, organizations can not only land the right talent, but employees can hang their hats with the companies that are the best fit for them, he said.

Additionally, when your workforce is struggling financially, offering workers a robust package of benefits to supplement their compensation — and making sure they know about, understand and utilize those rewards — is all the more meaningful.

“Having a proper communication strategy is key,” Martin said. “It is so often the case that employers have great programs to support employees’ financial well-being, but employees either don’t know about them or don’t know how to use them. Organizations need to prioritize this — they need to lean into digital communication platforms that offer personalized information or nudges so that employees get information that’s real-time and customized to their individual needs.”

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