Respond with agility while building for the long term. HR professionals have been asked to adapt at breakneck speed since the start of the pandemic. Rapidly shifting economic conditions also require adjustments, particularly when considering budgets. That type of flexibility is a strength, but can also lead to overcorrections.

While quick responses will be necessary in tougher times, it's critically important to make sure you're evolving and maturing your longer-term compensation philosophy and structure at the same time. The decisions you make now will have a long-term impact on your cost structure, ability to attract and retain talent and also employee expectations.

For example, right now many employers are figuring out how to handle compensation for employees in different locations. Beware making one-off decisions as employees relocate without setting a clear philosophy and policy; individual cases are easily interpreted as precedent and decisions for current employees will also shape your cost structure far into the future.

It's also challenging to respond to the many different challenges, and explain decisions coherently to employees, without an overarching compensation philosophy and structure. One of the benefits of a mature compensation structure – levels, ranges, compensation cycles, budgets – is that it gives you the levers to respond most effectively to a wide range of new situations.

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Maintain a Total Rewards mindset – with a focus on what matters most. The potential of a recession is likely already being reflected in company budgets across the spectrum, and that will inevitably extend to the resources you're able to allocate to employee compensation decisions and benefits. There can be a temptation to throw a little bit of what you have at everything employees want – but the reality is that even a small bump in pay might mean a whole lot more to your employees than investing in a new wellness app, or it could be the reverse!

So make sure you're really listening to what will move the needle most with your employees, and making strategic investment decisions from there using a 'Total Rewards' mindset that keeps all the potential levers in view that ladder up to a comprehensive employee value proposition. But don't be afraid to pull back on lower-impact activities to maintain those mission-critical benefits employees have come to rely on – or to ensure you can pay top performers competitively.

Ultimately, even though cash incentives will take on more pressure in times of economic volatility, it's still up to people leaders to give employees reasons to stay beyond the number on their paycheck. This can take many forms, such as flexible stipends, new mental health support, financial wellness resources, fertility benefits, sabbaticals, and enhanced leave options. When it comes to final decision-making and tradeoffs, ground your approach in the core values and the type of culture you are working to build.

You don't have to go it alone. Most companies don't have a full-time compensation manager with decades of experience. If you're a smaller business, you might not even have a formalized compensation process, let alone an answer to how to adapt to an economic downturn. Recessions are hard, but not unprecedented — you'll benefit from someone else's help and experience.

So consider working with a third party. A compensation consultant is able to conduct an objective pay analysis, help you clarify your philosophy, and recommend adjustments with an eye to the future. The latter may be the most important part: again, changes to your compensation strategy have far-reaching effects. They'll be able to steer you away from any pitfalls and recommend changes you won't come to regret in the future.

It may seem obvious, but also don't neglect the value of a tight partnership with your finance team. They have important expertise and will be playing a central role in re-shaping the company's financial and headcount plan.

Lastly, don't forget to solicit input from your broader team. What do your people value most, and what can you afford? Only they can answer the former. At Lattice, we've found that conducting total rewards surveys is the surest way to understand what employees really think about their salaries, benefits, and other perks. Consider running these at least once a year — ideally, months in advance of your open enrollment period so that you can use the feedback for the next benefits cycle.

Compensation is an art and a science. Most importantly of all: Don't lose sight of the emotional elements of compensation. The changes you make in response to this moment are far more than a spreadsheet exercise. At the end of the day, compensation is – for better or worse – one way we judge our self-worth and value. And not feeling valued remains one of the top reasons employees leave companies, regardless of how the market or the economy is doing.

This is why regardless of your compensation approach, ensuring you are clearly and thoughtfully communicating around it is such a key piece of the puzzle. Make sure you recognize, and validate, the personal part of pay – while still making strategic, data-backed decisions in setting your approach.

Dave Carhart is the Vice President of People at Lattice.