Pragmatic pessimism. That might be the best term to describe how companies are approaching 2023.
After a year defined by soaring inflation, strong wage growth and efforts to cool down economic growth, employers are bracing for a potential recession while trying to navigate a still-tight hiring climate.
Those challenges are expected to persist in 2023, and companies have been taking proactive steps to prepare, from pulling back on hiring to postponing major investments.
In this special feature, we explore strategies for success in an increasingly uncertain environment -- as well as where things stand as the calendar turns to 2023.
How to recession-proof your small business
From James Tomes' point of view, many business owners will soon enter uncharted waters yet again.
Nearly three years after the pandemic sent shockwaves through the economy, Tomes said business owners are preparing for another new scenario: battling both a potential recession and crippling inflation at the same time.
'No one in business leadership has had to navigate their business through stagflation,' said Tomes, CEO of Telgian Holdings Inc., which provides fire safety equipment.
Indeed, 2023 is shaping up as a strange year. Recession predictions abound, but economists don't believe it will significantly derail the hot talent market -- a combination that could prove challenging.
Seth Sokoloff, an independent, fractional CFO with a background in private equity, said companies need to be taking a close look at their costs.
'Definitely look at all the costs. Generally, headcount costs are one of the main costs. You have to make sure for the good of the business and for everyone in the business that you are still going to be cash-flow positive,' Sokoloff said.
He said try to be a 'price maker' and not a 'price taker' that simply absorbs increased costs. Here are some other suggestions from experts to help businesses weather a recession:
Look to the future. That means forecasting your balance sheet and what your revenue would be under various conditions. Make sure you know what the worst-case scenario looks like and plan accordingly.
Check in with suppliers. Make sure your suppliers are able to get your business what you need to keep operating. If not, look to have alternatives lined up and ready to go to ensure your own business is not disrupted.
Check your prices. Find out where and by how much you can raise your prices. You might not be able to raise them to cover all your costs, but there is room to raise them in many cases.
Salaries soared in 2022. Here's how to approach them in 2023
Despite concerns about an economic slowdown, wages are still on the rise heading into the new year. In fact, companies are budgeting their biggest raises in 15 years, which will build on top of significant pay gains for many workers in 2022.
While many experts say those gains won't be sustainable in the long term, they also concede many businesses have little choice at the moment.
'As long as job openings outnumber job seekers and inflation continues to climb, workers will have more leverage to negotiate for what they want,' said Paul McDonald, senior executive director at Robert Half International Inc. 'Staying on top of compensation levels is a critical first step to recruiting and retaining top talent -- and preparing for potential market fluctuations.'
Salary budgets for U.S. employees are projected to grow an average of 4.1% in 2023 -- highest since 2008 -- according to a survey by Willis Towers Watson PLC.
Average raises were budgeted at 4% heading into 2022, although many companies implemented unbudgeted midyear increases in 2022 to prevent turnover.
Many businesses found themselves paying significant premiums to attract or retain workers in 2022.
'At some point, those expenses become intolerable for the organization,' McDonald said.
So, how should companies be approaching pay at a time when expenses are under the microscope?
Get ahead of the issue. Companies would be wise to prioritize -- and pay up -- for their best workers before they get an offer.
Be creative. Small businesses can't often compete with larger counterparts on salary alone, but they often have more flexibility on perks.
Think long term. With a slowdown likely, experts say companies need to think carefully about how high they are willing to go with raises to avoid being stuck with a salary that's too high for the output.
-- Ty West
How to prepare for the pay transparency push
Pay was a pain point for many businesses in 2022 -- due in large part to rising wages and high turnover.
Shifting economic conditions are already tempering wage growth, but they won't eliminate an emerging headache for employers; the push for pay transparency.
Employers are feeling the heat on multiple fronts, with a younger generation of workers demanding pay transparency -- or just openly discussing their salary details -- and a growing number of states requiring it.
Experts say that combination of factors will force the hand of many businesses -- creating some sticky situations.
Pay transparency laws for job postings have taken hold in Washington state, Colorado, California and New York City.
'These laws will continue to gain ground across more and more states through 2023 and beyond, said Deanna Baumgardner, president at Employers Advantage LLC. 'Now is the time for companies to do a gut check on their compensation plans for recruiting purposes but also for overall internal equity.'
She said even if a company is not legally required to do so, it's often a good step.
'It shows transparency on behalf of the organization and eliminates the 'who's going to jump first' on the compensation question game, saving everyone time and headaches,' Baumgardner said.
Experts note pay transparency can also impact a company's existing workforce as employees realize how much new hires and others are being paid, said Niki Jorgensen, director of service operations at human resources platform Insperity Inc.
Companies can get ahead of the laws by revamping their pay structure and even performing a pay-equity audit to make sure existing workers are paid fairly.
'It is important for business owners to communicate with employees one-on-one to address any pay disparities and let them know about current plans to adjust pay scale,' she said.
She said companies that pay fairly can benefit by posting salary ranges. That is especially true if they post salary ranges in states where it's not required, gaining an edge on businesses that have decided not to post them.
Posting pay can also build trust in a company by showing it's transparent with workers.
'Transparency in pay reflects well on job seekers and builds trust in the company, which helps attract top candidates,' Jorgensen said.
-- Andy Medici
Here's how to avoid leaving talent on the sidelines
Even with many companies locked in both recruiting and retention battles for workers, the data shows organizations are leaving plenty of potential talent on the sidelines.
Experts say one culprit is artificial barriers employers are placing on candidates, such as four-year degree requirements.
With the gap between job openings and unemployed individuals expected to persist in 2023, leveraging untapped pools of talent could alleviate talent voids.
Even though many employers have removed college-degree requirements, research by Grads of Life, a diversity, equity and inclusion consulting firm, found individuals with a degree were almost 9% more likely to experience a promotion, raise or shift to a higher-paying job between 2020 and 2021.
'The report shows that there are still wide gaps in ensuring true equity through employment,' said Elyse Rosenblum, founder at Grads of Life.
Maurice Jones, CEO of OneTen, a national initiative aiming to hire, promote and advance 1 million Black individuals who do not have a four-year degree into family-sustaining careers, said eliminating those hurdles is critical.
'The four-year degree requirement is a great invisible barrier,' Jones said. 'The bottom line on that is 76% of all Black talent, ages 25 and above in the workforce today do not yet have a four-year degree. So if you put a four-year degree requirement, you are blocking out most Black talent in the workforce today.'
Jones said one of the keys to addressing the problems and disparities is taking a skills-based approach that focuses less on credentials and more on capabilities. It's also a better approach in a competitive talent environment, he said.
'You see higher retention from skills-first hiring, you see a better fit between talent and the actual job,' Jones said. 'And frankly, people aren't paying a premium for a credential that may be completely unrelated.'
Jones said leaning on skills, rather than degrees or credentials, also has a cost benefit.
'Frankly, people also aren't left paying a premium for a credential that may be completely unrelated,' he said. 'Get this, a company brought me a coding job that had a four-year degree requirement, which means that my four-year degree in political science would position me better to get an interview for that coding job than someone who did an eight-week boot camp in coding.
But Jones said recruitment is only one part of the equation. Many employers have underutilized talent within their businesses. As OneTen works with companies, it often finds diverse talent within companies that have been stuck in frontline roles for years.
'I think the big opportunity here is the promotion piece,' Jones said.
But that means biases and the other structural challenges in the promotion system have to be addressed. Some companies have done a good job of removing degree requirements, for example, but he said they often continue to hire and promote those with degrees.
'You have to do it systemwide to really get the kind of impact that you want to have,' he said.
-- Marq Burnett
How to navigate a choppy climate for small-biz loans
Small-business owners will have to navigate higher interest rates and a potential recession to secure financing in 2023 -- and that means fewer financing options and higher costs.
The Federal Reserve has spent 2022 continuously raising interest rates to help combat inflation and tamp down the red-hot job market, which is limiting options for businesses.
'As the economy slows, we expect banks to further reduce their exposure to small-business credit, expanding an already sizable void in critical financing for growing small businesses,' said Ben Johnston, chief operating officer at small-business financing firm Kapitus.
Banks are already showing signs they are pulling back on lending. New small-business loan balances decreased nearly 35% when compared to 2021, according to an analysis by the Federal Reserve Bank of Philadelphia.
Small-business owners with consistent revenue and strong credit will still have options, but Johnston said business owners will need to show consistent cash flow and balance the speed and higher interest rates of alternative lenders with the lower rates of the Small Business Administration.
'Given the rising rate environment, small-business owners can expect to pay more for capital and as a result, should be judicious with their cashflow and conservative with plans for expansion,' he said.
Greg Ott, CEO of small-business financial products marketplace Nav, said companies need a firm understanding of the ROI of financing in this climate -- as well as how quickly they can make money back.
He said 'expensive' money can make sense for a business if it needs to capitalize on a unique opportunity for an inherently revenue-enhancing action. But they will need to understand whether the cost is worth it.
'Long-term relationships are gold in a tough market,' he said. 'So find the best lender for today but also for tomorrow, stick with them, and perform beyond expectations.'