CASE STUDY

How Can Public Sector Employers Keep Pace With Wage Increases in 2022?

The Consumer Price Index (CPI) rose 7.9% year-over-year in February 2022, the largest 12-month increase in 40 years. Rising inflation amid the “Great Resignation” is placing enormous pressure on employers to retain and recruit new employees.

However, public sector employers still lag behind the private sector when it comes to salaries. So, how can public sector wages keep pace with inflation and compete with the private sector in 2022?

How Inflation is Impacting Salaries

By December 2021, inflation had climbed to 7% while salary increases averaged at:

  • 5% for private-sector workers
  • 4.5% for civilian workers
  • 2.7% for state and local government workers

Typically, the average salary increase in America has been 3%. In 2021 the national salary increase was 4%, the highest in 20 years, but still much lower than the inflation rate.

With inflation rising to 7.9% in 2022, both the private and public sectors are grappling with how to tackle the inflation versus salary increase challenge.

Most employers are not able to match pay increases to an inflation rate that high. The private sector is aiming at an increase of around 4.2% while the government is proposing a 4.6% pay increase for federal employees in 2023.

Many states and local jurisdictions are also assessing inflation and raises. Thanks to federal financial aid and higher budget surpluses, governors in states like Kansas, Missouri, South Dakota, West Virginia and Wyoming are proposing significantly higher increases for their employees.

Missouri Governor Mike Parson has proposed a minimum wage of $15 an hour (the state average is currently $11.15) and a 5.5% cost-of-living adjustment for state workers. South Dakota Governor Kristi Noem wants a 6% pay increase for all state workers plus additional raises for corrections officers.

On the other hand, many local government organizations with smaller budgets are likely to continue to face the pressure of trying to compete with the salaries of private-sector jobs. If your organization is in that position, what can you do to recruit and retain employees in a strained labor market?

How Can Public Sector Organizations Balance Pay Increases Against Rising Inflation?

Public sector employers are feeling the pinch of sharp inflation rises along with their employees. Here’s what you can do to help your employees offset inflation costs without creating budget imbalances in your organization.

1. Provide Higher Merit-Based Increases

If your salary budget is limited but you don’t want to risk losing your star employees, you can offer higher merit-based increases to your top-performing employees.

Merit-based increases can be tricky to implement as employees who receive lower increases may feel they were just as deserving. This can lead to resentment and lower employee morale. Consider working with an external HR consultant who can help you develop a fair and realistic performance management strategy.

2. Add More Benefits to Compensation Packages

An employee’s total cost to the organization includes more than just their salary. Now maybe a good time to review your compensation packages. As inflation rises, so too do healthcare costs and the overall cost of living when you eventually retire.

Can you increase your organization's retirement, health insurance or life insurance benefits? Your employees may not see the immediate financial benefits of a higher salary increase now, but these types of incentives will pay off later on.

In fact, you may be surprised at how important benefits are to employees. A survey conducted by Betterment in 2021 found that 65% of respondents said they would consider leaving their job for an employer that offered a more generous 401(k) plan.

3. Offer a Signup Bonus

A signing bonus is a once-off payment to a new employee who joins your organization. If you can’t afford a higher permanent salary, a signup bonus could prompt a candidate to accept the job.

Last year when the Minnesota Department of Corrections were trying to fill several vacant positions they realized that, despite a 2.5% pay increase, they were still struggling to compete with wages in the private sector. Wages for corrections officers were nearly $9 below what FedEx was offering, for example.

The department responded by offering substantial hiring incentives instead, which many recruits were happy to accept. On the back of this success, several corrections agencies in other states have implemented the same recruiting strategy.

4. Supporting Employee Wellness

The pandemic played a big role in the “great resignation.” Many employees reevaluated their lives and their jobs. What we’ve learned from this is that employees have made their wellness, as well as their families’ wellness, a priority. If you can support employee wellness in your organization, they will be less inclined to leave.

If some of your employees worked from home during the pandemic, allow them to continue doing so, which would allow them to save on gas and other transit costs. Other types of wellness benefits that ranked highly in the Betterment survey included childcare support, a wellness stipend and an employer-sponsored emergency fund. None of these directly increase salaries but they do help ease the financial strain employees are under.

Key Takeaways

Public sector organizations are under increased pressure to find and retain employees amid the highest inflation rates this country has seen in 40 years. While you may not be able to match the pay increases offered in the private sector, there are other incentives you can offer to attract and retain employees.

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Melissa Asher

With over 24 years of experience in human resources, specializing in training and development, test administration, and recruitment, Melissa brings a wealth of practical expertise to her Senior Leader role. As a hands-on leader, she is responsible for the growth and development of CPS HR’s Training and Development and Executive Search Divisions as well as leading key business development activities.

About CPS HR Consulting

CPS HR Consulting is a self-supporting public agency providing a full range of integrated HR solutions to government and nonprofit clients across the country.  Our strategic approach to increasing the effectiveness of human resources results in improved organizational performance for our clients.  We have a deep expertise and unmatched perspective in guiding our clients in the areas of organizational strategy, recruitment and selection, classification and compensation, and training and development.