How Does Inflation Affect Salary Negotiations?

With costs continuing to rise and purchasing power declining, inflation is taking its toll on almost every aspect of life – from routine purchases like buying groceries to major decisions like salary negotiations.

Although many companies are used to paying a premium for top technical talent, capital flows are tightening on non-profitable tech companies across the country. Only a select few will be able to pay a market premium, especially when they may also need to account for existing employees coming around again to request salary increases.

Here are a few ways hiring manager can respond when inflation creeps its way into salary negotiations:

Get creative. 

Even with inflation reaching a 40-year high of 8.6%, it’s simply not practical or sustainable for most companies to pay the difference. What hiring managers may be able to do is slightly raise salaries, and then fill in the gap with additional perks. Find creative solutions like working in additional or flex PTO, time off for mental health, reimbursement programs for gym memberships, or half days. What’s most important is that you meet new hires where they are, listen to their concerns, and then show them you understand, even if you aren’t able to fully meet their demands. Demonstrate their value without breaking your budget.

Find room in your budget for negotiations.

Although few companies will be able to fill in the nearly double-digit gap that inflation has created over the past two years, hiring managers should work to find some room in the budget for higher salaries. That’s not saying you need to meet every demand, but premium talent does come at a premium price. Since the 1970s, the high demand for tech talent has led candidates in our field to bring in some of the highest salaries of any industry sector; now isn’t the time to change that. Just as there are only so many people who can play professional sports, there are only so many people who can write code. If you want top talent, you have to expect to pay a premium.

Don’t expect the spiral to end anytime soon.

Don’t hold off on hiring as you wait for the latest inflation spike to blow over. Economists are not predicting it will get better anytime soon, and no one can expect the federal funds rate to slow this trend down either. Continued advancements in AI, 5G, quantum computing and other breakthroughs are only adding to the demand curve. Now’s the time to adjust and plan to continue adjusting for months (and possibly years) to come.