BY Emmanuel Zvada WE are all aware that the cost of living is rising and that people are struggling financially. Not everyone is able to define the word inflation properly but they understand that rising prices are no longer matching the cost of living and wages. This article will explain why financial pressures are ever increasing and what you, as an employer and managers, can do to try to reduce the impact of the growing financial storm on your staff, while looking at other ways to motivate and retain your workforce.
The situation has reached another level
Escalating inflation has left employers and compensation managers puzzled over their compensation strategies. Just a day ago, a medical aid provider wrote a memo saying “we will notify you of your monthly subscription later” for fear of the continuous increase in prices. When you move around the grocery shops to check the prices, you may be intimidated at the same time shocked that some salaries can’t even buy the basics. The cost of living, cost of labour, minimum wage and living wage are not even matching. They are spinning around in our heads like uninvited guests.
What causes the cost of living to go up?
An increase in the cost of living can be driven by a number of factors. Zimbabwe’s unstable economy has made it too expensive for people to pay for even basic goods and services. High levels of inflation are the driving force behind recent increases in the cost of living. Put plainly, inflation is the reduction in how much you can buy with the same amount of money from one period to the next, generally over a one-year period. The rise in the cost of living is additionally eating into the little disposable incomes of workers and a lot of people who are already suffering under the weight of unemployment. The result will be a serious decline in the standards of living and tremendously high poverty levels among the overwhelming majority of Zimbabweans.
Most private sector employees subsidising their employers
In the private sector, the majority of workers are subsidising companies and it’s actually true as many employees are just coming to work in a bid of hope that things will change for the better and fear of resigning to nothing. A lot are now cycling or walking to and from work especially those that work close to town. You may not be the one we are referring to but to check and prove whether or not you are in this category, divide your monthly salary with the number of days you go to work and also subtract your daily transport expenses. If you are not getting any food allowance or lunch, add it as well and just see how much you are earning per day. Divide daily income with the number of hours to see your hourly rate, you may be shocked you are not even earning US$3 an hour.
The informal sector situation
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The Zimbabwean economy is already struggling with high unemployment rate in the formal market and high inflation rate and the informal workforce actually comprises 85% of the total workforce. Like the private sector, participants in the informal economy should be treated as partners to help solve the economic crisis. In the informal sector, which is now sustaining the majority of citizens, there is a dog-eat-dog scenario in a bid to survive. I strongly believe that the informal economy is the economy of Zimbabwe considering the overmentioned percentages, hence it requires a separate ministry which should focus on developing the people in the informal economy to becoming part of the mainstream economy who contribute to taxes and improve their livelihoods to become part of the decent work agenda.
Causes of the discrepancies
Most employers focus on the cost of labour rather than the cost of living when determining pay strategies and that is the other reason why we often see a big discrepancy between the cost of living and cost of labour in our country. Most national employment councils in the previous weeks have managed to review their salaries but still the question is: To what extend will their reviewed salaries match with the fast-increasing prices and also how often will these be done as changes are now happening weekly. While employers tend to decide salaries based on what is considered competitive in the labour market, it is also advisable to look at the prices of basic commodities to benchmark their salaries.
Measures to address the situation
Every department in every business must face the reality of inflation and higher costs and human resources (HR) is no exception. To the HR leaders, rising costs is a people-problem as employees will need more money to support their families and to make work valuable to them. In that regard, HR leaders need to understand who will be most impacted by inflation to identify where they can have the most effective support in place. Prioritising financial wellbeing is a critical part of wider employee wellbeing and should not be understated.
Cost of leaving adjustments
A cost-of-living raise is an increase in pay that’s intended to keep the buying power of an employee’s salary the same during a period of inflation. Without a cost-of-living raise, the declining value of the dollar would leave workers with less real money in their pockets. A cost-of-living adjustment is important because it allows employees living on fixed incomes to afford basic commodities as prices increase over time.
It’s known that at this stage most employees are struggling to make ends meet given the devaluation of their salaries and rising inflation. To tackle cost of living pressures, employers must give employees some cost of leaving adjustment.
Times of crisis call for decisive and often atypical responses, not frantic reactions. How your organisation responds to the current economic situation differs. As an HR professional, you may exert some influence by educating the employers about cost of living versus cost of labour, reminding leadership of your company’s compensation principles and philosophy and doing your due diligence to develop recommended solutions to meet your company’s distinctive needs.Emmanuel Zvada writes in his own capacity. He is an Award Winning 2020 Most Fabulous Global HR Practitioner, HR Disrupter and Trusted Coach.