The first thing to recognize about compression is that there are no secrets at work, says consultant Brown. People are going to find out what other people make. They may talk openly or it may be relatively innocent, he adds. For example, your life insurance is half of salary, and employees are sitting at lunch discussing insurance. The employee says, “I have $25,000 and I don’t think that’s enough.” Everyone listening now knows this person makes $50,000.
Brown, of Effective Resources, Inc., delivered his tips at a recent BLR-sponsored webinar.
In general, Brown says, wage compression is:
- Self-induced in virtually every company.
- Often created when ranges change.
- Usually created when a new person is hired and paid more than the incumbent(s).
- Impossible to hide or be explained away.
- Likely to result in expensive legal action.
- Solvable only with money!
Of course, your compensation philosophy will dictate what you do to some extent. The important question to ask is, how long for someone to get from the minimum to the midpoint? That’s another way of saying, how long does it take for someone to be fully productive, because those people should be at the midpoint. It shouldn’t take more than about 3 years for most jobs, Brown says.
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An important part of avoiding compression is dealing with changes in the ranges. Brown offers his “triangle” approach for dealing with people below the midpoint when ranges increase.
How to determine how much of the general increase to give to employees below the midpoint.
First of all, people at or above the midpoint needn’t get part of the range increase—they are already being paid market for their jobs. And people below the minimum should move to the minimum—that’s just common sense.
For those in the range but below the midpoint, create a sliding scale triangle as shown below. It starts at 100 percent of the range increase for those at the minimum and tapers down to 0 percent for those at the midpoint.
The concept is that the people farthest below the midpoint get the largest bump. Find the person’s position in the range on the bottom line, then draw a line up to the slanted line, and read across to find the percent of the range increase. For example, A is low in the range and will receive 80 percent of the increase. B is not so low in the range and will receive 40 percent of the increase.
This is all independent of merit or other types of increases. This is just staying with the market.
From compression to geographic differentials to incentive plan design, compensation and benefits is a field full of challenges. “Maintain internal equity and external competitiveness and control turnover, but still meet management’s demands for lowered costs.” Heard that one before?
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