Two-thirds of surveyed business leaders report that they are “very concerned” about the effect of rising inflation on employee compensation, according to Salary.com, with another 31% saying they are “somewhat concerned.” About 69% report that employees have expressed concerns about inflation in conversations with managers and HR.

The easy answer is to raise salaries for all employees, but that may not be financially feasible for most companies. Plus, today’s raises could lose pace with inflation within months. 

As companies face downward pressure to raise wages, some are instead offering a wider range of benefits and non-monetary compensation to meet employees’ concerns and remain competitive in the job market. In short, employers are shifting their tactic to delivering a high-quality employee experience, with pay and benefits representing part of the equation rather than the total sum.

Employers boost benefits

Salary.com’s survey found that many employers have updated their corporate perks in recent months, with most offering higher sign-on bonuses (34%), followed by increased training and development (25%), targeted promotions (23%), retention bonuses (19%), new incentive plans (17%), and more PTO (15%). However, 30% report taking no action.

Retention bonuses and targeted promotions were slightly more popular than other incentives among companies with over 1,000 employees, according to disaggregated data shared exclusively with Fortune. Fewer of these companies also reported taking no action.

While a sizable share of employers say they’re offering sign-on and retention bonuses, these incentives are mainly useful for locking in key employees, either as candidates or tenured employees, for a short period of time. But they are not a long-term solution, says David Turetsky, vice president of Salary.com’s consulting division and a longtime compensation consultant and executive at Aon and ADP.

“They’re only done in small groups, and they’re only done for periods of time,” Turetsky explains. “Once that period of time elapses, it’s over. You could re-up another retention bonus, but then you’re creating that mechanism in people’s minds…So that can only be used sparingly.”

Targeted promotions and market adjustments are other levers companies can pull to address employees’ pay concerns. But again, this approach can be risky, especially when it comes to diversity metrics.

“Organizations need to be very, very careful about who they’re targeting for these promotions, why, and the communication of not only the people who they’re promoting, but the people who they’re not promoting,” Turetsky says.

To that end, some employers are instead increasing benefits as wages stagnate. In fact, spending on benefits is expected to increase another 8% in 2022 after increasing by the same amount in 2021, according to HR advisory firm Willis Towers Watson.

The inflation conversation

Inflation is a pricing index for the cost of goods and services that people buy, while the cost of labor is a function of supply and demand in the market. The idea that pay raises need to directly match inflation is off base, and workers must ideologically separate inflation from the cost of labor, says Lori Wisper, managing director at Willis Towers Watson.

Turetsky shares a similar sentiment, adding that cost of living adjustments are typically not given to all workers. Additionally, such merit increases, which employers are currently using to “offset some increase in inflation,” are not meant for that purpose.

“You can’t train employees to expect that just because inflation right now is 8.5%,” he says. “You can’t expect that to be the target in their mind for what merit increases are going to be because any increase you give them that is not at least 8.5% will set up the expectation that they’re ‘losing money.'”

Wisper acknowledges that although pay raises have increased over the last year, that approach has limitations, warning of “​​an escalation that could never end” in the war for talent.

“If you don’t train managers, or at least give managers the understanding that [merit raises] really aren’t supposed to make up for inflation,” the employee-employer relationship will quickly sour, Turetsky says.

Culture trumps compensation

Pay programs as a whole should be re-evaluated, Wisper says. But ultimately, investments in culture and employee engagement can drive more retention value. While 72% of companies surveyed by Willis Towers Watson say they are updating pay and benefits programs, many are doing so to address concerns beyond inflation, such as pay equity and ensuring that compensation is tied to performance metrics.

“There are some employers that have to pay that much because they’re not known as being great places to work,” Wisper explains. “The employee experience side of this is going to win the day…You’ve got to pay well, but you also have to provide a holistic, great employee experience.”

That assertion is backed by research from Willis Towers Watson and MIT Sloan School of Management, which found that a toxic culture is a far greater contributor to turnover than pay. It also found  that job insecurity and failure to recognize employee performance lead to higher attrition rates than compensation.

Both Turetsky and John Bremen, a chief innovation and acceleration officer at Willis Towers Watson, expect the current volatility in the compensation market to calm down within a few years, though some of the lingering demographic forces and changes in employee preferences may continue. 

“We are seeing a one-time shift, causing significant wage compression that will renormalize,” Bremen says. For now, progressive companies are leading on employee experience, emphasizing other aspects of their value proposition besides pay, and placing an increased focus on fairness and equity to curb inflation-driven turnover.

“Companies have really intensified their focus on pay fairness across not only traditional demographic groups, but looking even deeper across their populations” says Bremen. “That has really changed the fabric of the discussion considerably.”

Sheryl Estrada contributed to the reporting of this story.