Pay compression is likely to occur in an organization if an experienced employees salary
Salary compression, also referred to as pay or wage compression, is occurring in almost every organization. For nearly a decade, wages have remained constant and organizations and employees have pushed this idea aside. With the unemployment rate at the lowest that it has been in the last ten-years, the issues related to salary compression are abundant. Show First of all, let’s define what salary compression means. It is the situation that occurs when there is only a small difference between employee’s pay regardless of their skills or experience. It is generally the result of the market-rate for a given job outpacing the increases historically given by the organization to skilled and experienced employees. One of the most common causes of salary compression is when pay increases for current employees are low, but new employees are paid a higher wage to attract them to an organization. This problem generally becomes more severe during an economic downturn when pay increases are limited, but may also occur in even better economic times. Example: Over the last ten-years, the average merit pay increase across the board for all employees has been around 3%. However, the market has out-paced the average increase, thus employers have had to offer new hires higher wages in order to attract them, compared to the increases that they have given to current experienced employees. Specifically, salary compression is a result of when a subordinate’s base pay is very close to or more than their supervisor’s, or when a less tenured employee is equal to or paid more than a senior employee in the same position. When the job market is weak, meaning there are fewer qualified candidates to fill jobs, employers have had a tendency to hire candidates who have done the same job in a different organization, thus eliminating the need for training. In this situation, employers generally start the individual out at a higher wage compared to experienced employees. Instead of hiring an individual with high potential and molding them for the long-term, employers have opted for hiring candidates who are able to “hit the ground running” regardless of their overall potential. These candidates should have been hired into the organization at a lower wage. This scenario not only creates salary compression, but also may create significant pay inequities within an organization, which in turn could violate equal pay regulations. In situations where new hires make more money compared to experienced employees, it could create a severe pay equity issue, if the experienced employees belong to a protected class. History has shown that over the long-term, organizations that ignore salary compression, pay for problems related to it at some point. So how may organizations avoid salary compression? Here are a few ideas that may help an employer to avoid this issue:
While this article is informative, it is not all-inclusive of the reasons for salary compression, or the options that may be available. Employers who believe that they may have salary compression issues within their organization are encouraged to review their payroll records now and to make the corrections, as appropriate. Doing so now may result in fewer pay equity issues in the future. For additional information related to salary compression, please contact us at www.newfocushr.com. Written by: Kristen Deutsch, M.B.A., CCP President 02/18/2018 Which is pay compression most likely to develop?Pay compression when there is little difference in wage between employees despite differences in their respective skills. This problem may arise when the market rate for starting salaries increases faster than organizations can give raises to existing employees.
What is compression in terms of salary?Wage compression, also known as salary or pay compression, occurs when newly-hired, less-experienced employees earn close to what current employees make. For example, say an employee hired 10 years ago was offered a starting salary commensurate with the market rate.
What is compression in the workplace?What is salary, wage or pay compression? Pay compression is a compensation issue that develops over time. Also referred to as wage or salary compression, it occurs when there's little difference in pay between employees regardless of differences in their respective knowledge, skills, experience or abilities.
Which of the following is true of pay compression?Which of the following is true of pay compression? It is frequently a result of labor market pay levels increasing faster than current employees' pay adjustments.
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