Raise in salaries to address tight labor market challenges
In a bid to navigate an unusually tight labor market, CEOs of various U.S. companies spanning diverse industries have unveiled plans to raise wages by at least 3%, according to a recent report from the Conference Board. With unemployment dipping to 3.5% from June’s 3.6%, companies have been grappling with the difficulty of recruiting and retaining employees. The number of available jobs has outstripped the pool of job seekers, as highlighted by the Labor Department.
To counter these challenges and attract and retain talent, companies have taken the proactive step of increasing hourly wages by 0.3% after adjusting for inflation. This represents the fifth consecutive month of such pay hikes. However, even in the face of inflation, real hourly earnings have only risen by 1.1% over the past year, amidst the most significant inflationary period in four decades.
Richard Hermanns, CEO of HireQuest, underlined the persistent upward pressure on wages, underscoring the “constant shortage” of workers. He recounted a recent incident while traveling through Minneapolis when he observed a restaurant at the airport being closed until 2 PM due to inadequate staffing. HireQuest, a provider of temporary staffing solutions, stands as a testament to the prevailing workforce scarcity.
CEOs from a spectrum of industries, including financial institutions, cinemas, and transportation firms, have employed various strategies, such as technology integration and layoffs, to cope with escalating labor costs. Notably, during Q2 earnings calls, numerous top executives discussed these tactics.
UPS, for instance, managed to curtail compensation and benefits by $205 million in Q2 through a reduction in management staff by 2,500 on a year-over-year basis. This maneuver helped mitigate a 6.5% surge in average union wage rates during recent labor negotiations, as elucidated by CFO Brian Newman.
Carol Tomé, CEO of UPS, acknowledged the strategic importance of front-loading wage inflation to align with Teamsters leadership goals, even though it exerted some pressure on the company’s margins. She foresaw manageable inflation after a year of pressure.
Transportation company TFI International recently negotiated a 3% average annual salary increase for a five-year period, following a 15% reduction in shipping costs on a year-over-year basis. TFI’s CEO, Alain Bédard, highlighted this as a strategic move to balance escalating labor expenses.
ARKO, a convenience store operator, grappled with a 6.5% surge in personnel costs during Q2 compared to the same period last year, as per CFO Donald Bassell. He noted that reduced overtime was contributing to improved quality of life for employees, and the utilization of temp services helped mitigate these costs.
Cinemark Holdings, the operator of cinemas, witnessed a 12% spike in global salaries and wages on a year-over-year basis during the quarter, but strategic efforts such as higher attendance and streamlining managed to reduce these costs as a proportion of revenues by 1.6%. CFO Melissa Hayes Thomas also mentioned that minimum wage increases in some states played a role in the pressure on wage rates.
Principal Financial Group, a key player in insurance and retirement asset management, enjoyed enhanced performance due to the increase in pay and retirement savings across several companies. This bolstered the company’s revenue, as highlighted by Principal CFO Deanna Strable. However, labor market challenges remained a headwind, leading to salary hikes and increased costs in light of inflationary pressures and the ongoing war for talent.
As U.S. companies grapple with an intricate labor landscape, these strategic wage increases are anticipated to aid in attracting and retaining skilled employees. The coming months will unveil whether these measures succeed in easing the strain on industries striving to thrive amidst turbulent labor market dynamics.