Omicron, Inflation and Labor Shortages: CEOs Brace for Change in 2022

Some companies, like industrial giant Honeywell International Inc., are now reassessing prices for some products more frequently. Others, including cloud-services provider Cloudflare Inc., are planning new incentives to lure employees back into offices in the coming months. Many companies are rolling out broad-scale Covid-19 testing to allow larger gatherings of workers.

“These obstacles we’ve been given are overcomeable,” Salesforce.com Inc. co-founder and co-CEO Marc Benioff says.

The rapid spread of the Omicron variant in the U.S. brought an array of familiar challenges back to the surface: temporary office closures, staffing shortages and supply-chain problems, all at a time when consumer demand for products and services surged. That created a sense of whiplash for some employees, while reinforcing that constant change is the new norm, executives say. “We’re winning the war, but it’s not over yet,” says Bank of America Corp. CEO Brian Moynihan.

In a recent survey conducted by the Conference Board, a private research group, more than half of U.S. CEOs expect at least 40% of employees to work remotely three or more days per week after the pandemic subsides, compared with 28% pre-pandemic. Meanwhile, 82% of the roughly 900 CEOs surveyed globally said they are facing upward pricing pressures for raw materials and wages, and more than half expect higher pricing pressures to last until mid-2023 or beyond. Labor shortages are also a top concern for U.S. CEOs.

Here’s a look at three challenges business leaders say they are bracing for in 2022, based on interviews this month with more than a dozen CEOs.

The future of the office

Omicron has injected new uncertainty into the office return. Some CEOs say they closed company offices for all of January, while others have kept them open. A few say they will include boosters in their company vaccine mandates.

Mr. Benioff of Salesforce says he is a “pro-tester,” or someone who believes people can safely gather in person if they regularly test. For instance, the San Francisco-based software giant has had a number of executive off-site gatherings with hundreds of people. The requirement: a negative Covid-19 test that day. Given that strategy, Salesforce is moving forward with a company event in February with about 5,000 people, he says.

“We want to get together, but we want to get together safely,” says Mr. Benioff, who leads around 70,000 people. “Trust as the currency of the culture is earned mostly through in-person gatherings, and it’s getting to know somebody.”

CEOs still struggle with enticing employees to work at the office, something many say is important to build and maintain company culture, better collaborate, socialize and innovate. Cloudflare is building a credit card with perks that will be activated when an employee badges into the office, says co-founder and CEO Matthew Prince. He says the so-called Cloudfare Orange Card will offer discounted meals at local restaurants using tax-free dollars but will also have limitations on when it can be used and how much can be spent.

“Our incentives are to get more people to come in; we don’t want to require them to come in,” Mr. Prince says. Cloudflare, which is based in San Francisco, hopes to launch the card early this year around its official office reopening.

CEOs generally say they expect a small share of their employees to work from the office before the pandemic subsides, and many are redesigning their spaces with that in mind.

Houston-based Hewlett Packard Enterprise Co. has made its offices more open and tech-enabled, says CEO Antonio Neri. “Our sites don’t look anything like they did in 2019,” he says. The spaces take into account social distancing and can measure temperature changes to check if too many people are in a room, he says. Its new Houston site will be completed in February and powered by renewable energy.

Whether or not employees are in the office, CEOs are focused on getting their workers boosted. Bank of America said it would donate $100 to hunger-relief organizations for each U.S. employee who proves they are boosted by the end of January.

The power of vaccines, boosters and treatments, combined with greater data and an understanding of how the virus works, means that society should be able to better live with Covid in the coming months, Mr. Moynihan says. “There will be ebbs and flows and disturbances, but those disturbances are wholly different than they were in March, April 2020,” he says.

Rising inflation

Inflation climbed to a 39-year high in December, with strong consumer demand colliding with continuing supply challenges.

Beverage maker Pernod Ricard SA’s North American business is being hit by shortages of bottles and cans; a lack of shipping containers means the company has had to move some freight by air; and a dearth of drivers has led to paying out a lot in overtime, says Ann Mukherjee, CEO of Pernod Ricard North America.

“Input costs across the board are going up, it’s industrywide,” she says. “And, yes, that is the big one getting passed on to consumers.”

Ms. Mukherjee says she expects cost increases for at least another 18 to 24 months. In the alcohol industry, many of the raw products are aged, so companies couldn’t foresee this demand.

“There isn’t enough agave in Mexico to make enough tequila,” she says, though she adds that the market will catch up in the coming years.

Adding to the challenges: Few executives have experienced prolonged periods of high inflation throughout their careers, many CEOs say.

“We’re learning a new playbook,” says Darius Adamczyk, CEO of Honeywell. “This is a new muscle that a lot of business leaders haven’t really had to deal with in a very long time.”

To address rising raw-material costs and other supply disruptions, Honeywell and other companies are rethinking pricing strategies and adopting new processes to cope.

At NRG Energy Inc., which is based in Houston, the company has tried to balance rising costs for fuel to generate electricity with an effort to hold down expenses elsewhere. “If you see an inflationary move or price [increase] in your input, it’s not like you can pass it one to one,” says CEO Mauricio Gutierrez. “You don’t want to create a bill shock to your customers.”

Mr. Gutierrez says he expects inflation to remain an issue for 2022 and perhaps the first half of 2023, though he expresses optimism that pricing will begin to stabilize as pandemic disruptions ease. “Remember, this is Economics 101,” he says. “If demand is there, the supply chain is going to start flexing up, and then things are going to go back to normal.”

War over talent

Business leaders across industries say one of their toughest challenges will be how to hire—and retain—employees when workers are quitting their jobs at record rates and job openings remain at historically high levels. There were 12 million job openings in the U.S. at the end of December, according to estimates from job-search site Indeed.

To keep staffers from leaving, many CEOs say they are making a greater effort to “re-recruit” existing employees, or closely watching internal employee-sentiment surveys to monitor for potential signs of trouble.

Others are aiming to create greater stability for workers. Meatpacker JBS USA Holdings Inc. has raised wages and expanded tuition benefits; its average wage in its beef division went up in a year to about $23 an hour from approximately $20. It is also investing in providing more affordable housing in the cities where it operates, so more staffers can buy a home. “Attracting talent, in my opinion, requires more than good pay,” CEO Tim Schellpeper says.

Executives say they are relying more heavily on technology to fill high-turnover positions. When Waste Management Inc. opened a recycling plant in Chicago last year, the company installed more than a dozen advanced optical sorters, allowing it to hire 30 workers rather than the roughly 150 largely temporary workers it may have once needed. The sorters can identify items on a conveyor belt, shooting air at a Tide bottle, for example, to knock it into the correct bin, work that was once performed by a human. The company plans to spend millions to retrofit older facilities with similar technology.

While such plants require fewer workers, Waste Management CEO James Fish Jr. says the company is hiring more employees overall, including higher-paying roles in technology. It speeded up its recruiting processes to more quickly hire drivers and others. The company also recently sweetened benefits, including paying for college tuition for employees’ dependents. To weather a tight labor market, “what I can do is make sure I differentiate WM,” Mr. Fish says.

Managers say they also realize they have to stay in better touch with their employees. PagerDuty Inc. CEO Jennifer Tejada says she spent about four days in December calling the company’s top 50 leaders individually, surprising many of them. “I do think personal touch matters,” she says.

Ms. Glazer and Mr. Cutter are Wall Street Journal reporters in New York. They can be reached at [email protected] and [email protected].