Startup salaries and inflation: how to remain competitive in a strong job market
Samantha Furley, July 21st 2022

When faced with soaring increases in the cost of food and groceries, fuel, and household bills, it should come of little surprise that UK employees are increasingly looking for a pay rise to help cushion all manner of financial blows.  

Record rates of inflation and a spiralling cost of living crisis mean that we’re all feeling the pinch. But for the vast majority, employee wage increases will fail to keep pace with inflation this year – leaving employees and households out of pocket, just as price rises accelerate.  

As a startup business owner, looking after your staff during these testing times should be a top priority. So, with recession threatening and living costs looking likely to surge for the foreseeable, now is the time for you to critically evaluate your compensation models to ensure that you’re adequately supporting employees both financially and emotionally, whilst also remaining profitable as a business.  

Staying competitive as a startup 

So how can startups remain competitive during times of high inflation? Hiring (and retaining) top tech talent on a stringent budget is already a challenge faced by startup founders. And this challenge is compounded when faced with the prospect of losing key tech talent to competitors with deep pockets who are offering greater certainty or enhanced renumeration packages.  

The issue this creates is twofold; demand from other businesses will push salaries higher, whilst also raising expectations among employees about a fair salary to help them live comfortably. But if you want to remain attractive to top talent, you need to compensate competitively. This leaves employers with a difficult decision to make.  

One argument is that to avoid a wage-price spiral, we all need to show some degree of wage restraint. But is riding out a cost-of-living crisis really an option? Probably not. For employees at least, that’s likely to be a bitter pill to swallow. So that begs the question: Should your startup business bow to market pressures and increase employee wages? 

Consider alternative financial support 

For cash-strapped startups, it’s important to be mindful of ongoing business costs whilst also recognising the financial challenges faced by employees.   

One such way would be to offer staff a one-off payment or regular allowance to help them manage the rising cost of living. Or you could offer employees the opportunity to take advantage of company growth by offering a performance-related bonus. The benefit of this to you is that it gives you the flexibility to offer a form of payment to your employees, but avoids you being locked into paying higher salaries the following year. 

Alternatively, consider whether offering share options for your startup is feasible. An equity options programme isn’t just a great retention tool. It could reward employees in a meaningful way that isn’t affected by inflation – with the value potentially much greater than a short-term or inflation-linked pay increase.  

It's worth bearing in mind the potential consequences of not offering some form of  financial support. This includes the prospect of losing top tech talent to higher paying competitors (something which could arguably have a far greater impact – both financially and logistically - given the competitiveness of the market). 

Power to the people 

Think about your audience. It’s a job hunters’ market. The tech talent pool isn’t sufficiently large enough to meet hiring demand from startups and scaleups – meaning that the power is firmly in the hands of your employees (and your future workforce).  

Before bowing to pressure and applying an across-the-board salary rise, talk to your team. Ask them what they want. What is their primary motivator? Start by re-examining your non-monetary benefits. Considering the overall employee experience is a great way to retain staff when pressure on wages is high, so think about your training programme and how you can develop the skills of your existing workforce.  

It's important that you continue to review salaries regularly but don’t feel pressured into double digit pay increases if your budget simply doesn’t allow for that. Our advice for startups? Focus on employee wellbeing, prioritise retention and track market rates to ensure that you continue to pay people a competitive salary. Because when it comes to job satisfaction, financial rewards are often lower on the list of importance than many people think. 

Engage - don’t just compensate 

The fact is that the fall in real wages is going to present a problem for all organisations. But whilst there’s very little the average startup or tech scaleup can do to counteract the decline of real wages, there are ways in which you can engage employees without breaking the bank.  

In this absence of power, think creatively. Be open and honest with your employees. Remember, there comes a saturation point: as a startup, you realistically can’t compete based on salary alone – and nor should you try to. Instead put in place a smart employee-first strategy that addresses your employees’ concerns about the impact of inflation, whilst embedding a culture trust, praise, and continual development to compensate for a slump in real wages. 

If you’re still feeling uncertain how to address the challenge of rising inflation and retaining your talent, we’d love to help. We talk to hundreds of candidates each month, and are a talent partner to a variety of startups and scaleups. We can give you a sense of the wider talent market, and be a sounding board to help you think through how to tackle this. 

If you’d like to talk more then drop a line to our Co-founder & CEO, Alan Furley, on alan@isltalent.com or connect with him on LinkedIn

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