Benefits and Compensation

The 9 Steps to Solving Pay Compression

In yesterday’s Advisor, consultant David Wudyka clarified the issues around pay compression; today, his 9 steps for curing it, plus an introduction to a timely webinar—How to Find and Fix the Pay Errors You Don’t Even Know You’re Making.

Pay compression is particularly difficult to address in times of economic hardship, says Wudyka, but there are steps you can take to eliminate it.

Wudyka is managing principal of Westminster Associates in Wrentham, Massachusetts. His tips came during a recent webinar sponsored by BLR.

1. Revisit/rebuild “grade structure.” The first thing we can do is to rebuild our grade structure, which may be responsible for “structural compression.” More often than not, says Wudyka, a major contributor to existence of pay compression rests with the nature of the pay ranges themselves, specifically, that they are too narrow from grade to grade.

When I study market pay rates, the real ranges in the marketplace, they tend to be wider in the external marketplace than they are in the company’s internal structure, Wudyka adds.

2) Make “equity adjustments” to accelerate pay. When you look at a group of employees at the low or high end of the range, identify people whose performance level and rate are not in the proper relationship. Those are the candidates for equity adjustments.

3) Make sure your ranges are pegged to the market. You want to adjust pay ranges on regular basis; my recommendation is to adjust every year. If you can’t do that, it’s likely that you are falling behind the market, at least structurally.
You don’t have to rebuild the structure every year, but you do have to adjust each year.

4) Improve your pay administration. Study rates, attach names, experience levels, and performance levels. Compared to “relevant others,” are employees paid fairly?

5) Consider promoting employees. When concerned about those clustered at the top of the range, ask, is this a person that we can move out and up to another pay grade? Don’t do this lightly, says Wudyka, but if someone could contribute if in a job with higher responsibility, you can solve the pay compression problem.

6) Consider “re-assessing” some employees. If you have underperformers, people whose performance contribution is less than it should be, consider freezing compensation. Generally, we don‘t take pay away, but we can freeze. Or ask, should this person be reassigned to job with lower responsibility levels?


HR budget cuts? Let us help. HR.BLR.com is your one-stop solution for all your HR compliance and training needs. Take a no-cost, no-obligation trial and get a complimentary copy of our special report Critical HR Recordkeeping—From Hiring to Termination. It’s yours—no matter what you decide.


7) Rewrite job descriptions. Perhaps you need to reclassify employees as duties change. Have a person’s duties, roles, responsibilities changed? Is person’s role too narrow?

8) Consider merit bonuses instead of raises. This is not a solution per se, but you can use merit bonuses to avoid aggravating the pay relationships in compression situations, Wudyka says. The obvious benefit is that you can allow some rates to float up, and others to remain the same to “disperse” the bunched pay rates, all without building increases into base pay rates.

9) Take care setting pay rates for new employees! This is the real “killer,” Wudyka says. His recommendation: ensure oversight by the compensation manager.

Pay compression—never easy, but certainly not your only challenge. In HR, if it’s not one thing, it’s another. Like FMLA intermittent leave, overtime hassles, ADA accommodation, and then on top of that whatever the agencies and courts throw in your way.

You need a go-to resource, and our editors recommend the “everything-HR-in-one website,” HR.BLR.com. As an example of what you will find, here are some policy recommendations concerning e-mail, excerpted from a sample policy on the website:

Privacy. The director of information services can override any individual password and thus has access to all e-mail messages in order to ensure compliance with company policy. This means that employees do not have an expectation of privacy in their company e-mail or any other information stored or accessed on company computers.

E-mail review. All e-mail is subject to review by management. Your use of the e-mail system grants consent to the review of any of the messages to or from you in the system in printed form or in any other medium.

Solicitation. In line with our general non-solicitation policy, e-mail must not be used to solicit for outside business ventures, personal parties, social meetings, charities, membership in any organization, political causes, religious causes, or other matters not connected to the company’s business.

We should point out that this is just one of hundreds of sample policies on the site. (You’ll also find analysis of laws and issues, job descriptions, and complete training materials for hundreds of HR topics.)


Find out what the buzz is all about. Take a no-cost look at HR.BLR.com, solve your top problem, and get a complimentary gift.


You can examine the entire HR.BLR.com program free of any cost or commitment. It’s quite remarkable—30 years of accumulated HR knowledge, tools, and skills gathered in one place and accessible at the click of a mouse.

What’s more, we’ll supply a free downloadable copy of our special report, Critical HR Recordkeeping—From Hiring to Termination, just for looking at HR.BLR.com. If you’d like to try it at absolutely no cost or obligation to continue (and get the special report, no matter what you decide), go here.