Recruitment, retention and commitment in an era of inflation and uncertainty

February 2023 | EXPERT BRIEFING | LABOUR & EMPLOYMENT

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Labour and human relationships are currently challenging for companies, especially in Argentina. The world has gone through a global pandemic and experienced unprecedented technological progress, which has impacted the global economy and, of course, the labour market.

Employees’ priorities have shifted, forcing companies to adapt their business to retain personnel while remaining competitive. The purpose of this article is to analyse how companies are adapting to an adverse economic and social environment.

Pandemic, technological revolution and economic crisis

Although the coronavirus (COVID-19) pandemic has not been fully resolved (as the ongoing emergency in China attests), the world has been declining cases, and is slowly returning to normality – or perhaps a ‘new’ normality.

Restrictive measures adopted by countries during the pandemic, specifically quarantine and lockdown periods, necessitated change, particularly in the way companies performed their activities and employees were able to carry out their regular duties.

A technological revolution was already taking place, with globalisation intensifying all kinds of transnational business processes. However, the pandemic accelerated these changes.

Physical and geographical borders have blurred. With the right infrastructure and skills in place, it is now possible to work from anywhere in the world.

Technological advancements and globalisation are gradually replacing human work with artificial work, which, in turn, places a higher value on specialised, highly skilled jobs. Many IT companies are expanding, and companies are on the lookout for employees with sophisticated technological skills.

Economic factors are also affecting the labour market. Inflation has been a key issue in Argentina for decades, but now, in the wake of Russia’s invasion of Ukraine, it is becoming a global problem. We are facing global inflation unlike anything seen in many years.

The human factor

Inevitably, these circumstances have had an impact on the human factor for businesses.

The pandemic brought a global crisis to people’s everyday lives. The idea of becoming infected, suffering from the disease or even dying, led to a shift in people’s priorities.

Many researchers have studied what has been called ‘the great resignation’ – the process of employees around the world leaving their jobs in search of short-term goals and giving priority to their personal lives. Many people in general – and employees in particular – began to prioritise quality of life over professional development, and to rethink whether their work truly satisfied them.

Meanwhile, the inflation growth is also causing employees to prioritise short-term economic incentives over a long-term career. This leads to continuous staff rotation. Companies are investing more in recruiting new talent than in retaining existing staff, and employees are seeking instant financial satisfaction rather than waiting. Economic wellbeing is undoubtedly a big part of personal contentment.

There is also a generational aspect here. Millennials typically seek to work at companies consistent with their values and principles. The term ‘green economy’ describes those sectors that produce, distribute and consume goods and services consistent with human wellbeing. This includes companies that demonstrate commitment to the environment, corporate social responsibility, and diversity and inclusion.

The challenges for companies

As human labour is replaced with technology solutions, and greater importance is placed on more skilled jobs, there is also a reluctance to embrace traditional work and a shift toward short-term incentives partly due to inflation and social uncertainty. All these factors make it increasingly difficult for companies to stay competitive and retain talent.

Companies are also facing internal competition. It is increasingly common for start-up companies to offer attractive incentives to younger talent. The pandemic and the growth of remote working also means local companies now have to compete with multinational companies. In Argentina, more employees are being hired by foreign companies to provide services from home. These companies are inevitably in a better economic position to offer young people what they seek.

On a separate matter, there is an employment challenge regarding terminations and conflicts. The National Labour Chamber of appeals recently changed the criteria for updating labour credits and established a capitalisation of interests. This capitalisation substantially increases the amount that can be claimed in court, and consequently, the financial risks associated with labour cases. Depending on the specific case, amounts may be double or even triple.

Recruitment and retention

Managing human resources is no longer just about hiring and organising personnel. A survey carried out by PAE involving 121 leading companies in Argentina found that companies now prioritise creating salary incentives, retaining talent, and creating competitive compensation schemes that protect employees’ emotional wellbeing.

One of the most significant challenges companies will have to face is how to manage inflation in 2023. In 2022, Argentina experienced its highest annual inflation in more than 30 years. Based on surveys and forecasts, local companies are estimating that inflation rates in 2023 will be similar to those recorded in 2022. Employers are already analysing their options to mitigate the effects.

With presidential elections drawing closer, the Argentine government will probably insist on outdated and inefficient populist measures focused on increasing purchasing power, without considering the present or future consequences. Unless another path is taken, inflation and devaluation will, once again and for a long time, be the greatest concerns for society and for companies.

Going forward, companies – especially HR departments – should use all the tools at their disposal to tackle these challenges and avoid impacts to their operations.

In this regard, many strategies have and should be implemented. In Argentina, the most common action in recent years has been to pay salaries partially or totally in US dollars, which protects the value of wages in the face of devaluation.

In Argentina, however, there is a lack of US dollars. This led to the implementation of restrictive measures for their purchase, and the rise of alternative means, legal or not, to acquire them. In other words, people turn to alternative markets and buy foreign currency at almost twice its official value. Therefore, paying salaries or bonuses in US dollars is the principal method used by companies to retain or hire talent.

Other companies have gone a step further and adopted payment mechanisms that involve unregulated (at least in Argentina) technology, such as cryptocurrencies. Blockchain technology is a key feature of globalisation and technological progress, and labour laws cannot remain oblivious to these developments. Unfortunately, Argentina has outdated legislation and judges who are not keen on change.

But financial incentives are not the only mechanism available to companies. In addition to keeping salaries competitive during times of economic instability and uncertainty, companies must also consider indirect compensation or non-salary incentives – also known as ‘emotional salary’.

Indirect compensation may include a lunch allowance, housing, and items for younger children, among others, all of which assist with the cost of living and demonstrate empathy for employees’ personal situations.

Other non-salary strategies aim to make employees comfortable at the company, at a time when personal attendance at the office may not be a priority. This includes flexible working policies where performance matters more than strict compliance with set hours. The pandemic and new technologies have given rise to a fresh mechanism for measuring work which focuses on meeting objectives and achieving results rather than following a time schedule. This, in turn, is compatible with the more convenient and flexible schedules expected by employees in the wake of the pandemic.

To encourage employees to go to the office in person, companies are creating spaces where they feel comfortable, such as co-working areas, after-office events, breakfasts, or even entertainment areas with ping pong tables, for example.

In addition, countries such as New Zealand, Germany and Sweden have implemented a reduced working week of four days, instead of five. In Argentina there is no indication this will be implemented any time soon, but some trade unions are pushing for conversations to begin.

These strategies not only help to recruit and retain employees, but also improve productivity and loyalty. This boosts business results by reducing staff rotation and hiring costs.

Final thoughts

The world is facing an era marked by the effects of the pandemic on the economy, society and human psychology. Companies are struggling to remain competitive in the face of changing employee priorities, which have drastically shifted from long- to short-term objectives.

Employers in Argentina and all over the world must develop their businesses to satisfy employees. Strategies for future growth will vary from protecting salaries from inflation to improving employees’ emotional wellbeing. This implies playing within the limits of labour law, such as work hours and salaries. We are facing a labour market that continues to change and adapt to the times. Companies and the law should do the same.

Enrique M. Stile is a partner, Martín E. Guala is a senior associate and Javiera Martinez Correa is a semi senior associate at Marval O’Farrell Mairal. Mr Stile can be contacted on +54 (11) 4310 0134 or by email: ems@marval.com. Mr Guala can be contacted on +54 (11) 4310 0100 or by email: maegu@marval.com. Ms Correa can be contacted on +54 (11) 4310 0100 or by email: jamc@marval.com.

Enrique M. Stile, Martín E. Guala and Javiera Martinez Correa

Marval O’Farrell Mairal