HR is no longer marketing. CHROs are taking over the corporate cost agenda in the era of expensive capital.

The human capital management model based on emotional employer branding is entering a phase of structural phase-out. Under the conditions of persistent inflationary pressure, the high cost of money, and growing economic uncertainty, management boards expect HR directors to provide not image-driven narratives, but hard financial competencies: control of labor costs, skillful modeling of employment scenarios, analysis, and management of the company's operating leverage. According to analyses by the Gremi Personal Analytical Center, the personnel function is ceasing to be the domain of communication and organizational culture, becoming instead one of the key pillars of the company's financial architecture – increasingly closer to the CFO than to marketing. At the same time, experts warn against the macroeconomic trap of excessive increases in base rates, which in the years 2026–2027 could accelerate automation and the reduction of operational positions in the EU.

From employer branding to economic calculation

The last 10-15 years, following the financial crisis, and especially during the era of cheap money between 2015 and 2021, favored building a competitive advantage through emotions and employee experience. Organizations competed for talent by investing in, among other things: offices as lifestyle spaces, organizational culture as a product, extensive benefit systems, and an attractive and emotional EVP (Employee Value Proposition).

In an environment of low interest rates and easy access to financing, capital was relatively cheap, and the pressure for strict control of fixed costs was limited. As a result, the personnel management area could function as an employer brand ambassador, focused on building engagement and image. Today, this model is losing its effectiveness.

As indicated by the analyses of the Gremi Personal Analytical Center, the rise in inflation and the cost of living has changed the structure of employee motivation. The real value of remuneration and its stability have become crucial, rather than symbolic elements of organizational culture.

"In the era of cheap money, companies could effectively 'sell the atmosphere'. Under conditions of expensive capital, employees focus on financial security and the real cash flow of the household. This is a permanent shift, not a temporary trend" - emphasize experts from the Gremi Personal Analytical Center.

The new role of the HR director: financial partner to the board The change in the macro environment is redefining the responsibilities of HR leaders. They increasingly participate in budget processes, investment reviews, and project profitability analyses. The scope of their competencies today includes:

• advanced compensation analytics,
• planning labor costs in a multi-year horizon,
• modeling employment scenarios under variable revenue levels,
• integrating HR data with financial controlling,
• analyzing the impact of the employment structure on EBITDA and cash flows.

According to the analyses of the Gremi Personal Analytical Center, organizations that treat personnel management as part of the financial system exhibit greater resilience to economic fluctuations and react faster to changes in demand.

"Today, HR must understand the mechanics of fixed costs, operating margin, and operating leverage to the same extent as a financial director. Employment management has become part of the company's balance sheet strategy" - points out Liliya Tereshchenko, Strategic Advisor at Gremi Personal.

The trap of rising base rates

A natural response to inflationary pressure is raising basic salaries. However, from the perspective of business economics, this is a decision to increase the share of fixed costs in the expenditure structure.

The consequences are long-term:

• Permanent increase in fixed costs – a higher base salary applies regardless of the revenue level.
• Loss of flexibility during a crisis – limited ability to adjust expenditures without reducing headcount.
• Increase in operating leverage – greater sensitivity of the financial result to sales fluctuations.

In an environment of geopolitical uncertainty and weakened growth dynamics in some EU economies, such a cost structure can significantly increase operational risk.
"Raising base rates too quickly improves the situation in the short term, but in the medium term, it reduces the company's ability to absorb market shocks. This is the classic trap of high operating leverage" — adds Tereshchenko.

Scenario for the EU 2025–2027: wage pressure and accelerated robotization

According to the analyses of the Gremi Personal Analytical Center, the most likely scenario for some European Union economies in the coming years will be sequential and structural in nature. In the years 2025–2026, pressure for further increases in basic salaries will continue, as a result of earlier inflation, rising living costs, and still perceptible staff shortages in selected sectors. During this period, organizations will strive to stabilize employment through increases in base pay in order to maintain operational continuity and limit turnover.

However, in the next stage – in the years 2026–2027 – rising labor costs may begin to more clearly influence the investment decisions of enterprises. According to the Analytical Center, there will then be an acceleration of investments in automation, robotization, and solutions based on artificial intelligence. This will be a response to the increased share of fixed costs in the operational expenditure structure and the necessity to protect margins amid slowing revenue dynamics.

In the perspective beyond 2027, a partial "bursting" of employment in low-skill segments is possible, especially where processes are repetitive and susceptible to automation. This may primarily affect industrial production, logistics and transport, manufacturing, as well as warehouse operations and distribution centers. In these areas, the relationship between the cost of labor and the cost of technology is changing in favor of capital-intensive solutions.

The paradox of this process is clear: in the short term, employees successfully negotiate higher base rates; however, in the medium term, guided by economic calculation, enterprises increase outlays on technologies replacing human labor. "Every permanent increase in the cost of labor shortens the payback period for investments in robotization. Capital reacts rationally – it optimizes the cost structure in the medium term, minimizing sensitivity to wage pressure" - indicate experts from the Gremi Personal Analytical Center.

A new architecture of employment management

The new human capital management model does not mean abandoning care for organizational culture or employee engagement. It does mean, however, grounding them unequivocally in the financial realities of the enterprise. The priority becomes designing the remuneration structure in such a way that, on one hand, it ensures market competitiveness, and on the other, it maintains adequate cost flexibility.

In practice, the importance of variable components linked to results, bonus systems dependent on productivity and profitability, and ongoing monitoring of labor costs in relation to revenues is growing. Scenario planning, which takes into account both growth variants and periods of weakened demand, also plays an increasingly important role.

As highlighted by the analyses of the Gremi Personal Analytical Center, organizations that manage to combine attractive remuneration with control of fixed costs and a flexible operating model build greater resilience to cyclical economic fluctuations. Under conditions of expensive capital, this balance becomes a key element of long-term business stability.

The hard economics of the labor market

The transformation of the HR function is not a temporary adjustment, but a consequence of a change in the financial conditions in the economy. The era of cheap money rewarded narrative and experience. The era of expensive capital rewards cost discipline, data analysis, and strategic employment management.

"with finance and controlling will build a lasting competitive advantage. The rest may be forced into drastic structural corrections" - summarizes the Gremi Personal Analytical Center.

The labor market is entering a stage where emotional narrative gives way to hard economics. And this means that the future of personnel management will increasingly be shaped by financial data, risk analysis, and the long-term capital strategy of enterprises.