“Wage compression (when lower-level or less-experienced comp bumps up against or exceeds the comp of higher-level or more-experienced employees) is a bit of a nightmare, and few comp managers avoid it,” says Barry L. Brown of Effective Resources, Inc.
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.
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; and
- 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.
The DIY compensation makeover—webinar coming next week! Learn more.
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. 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.
The DIY Compensation Makeover: How to Primp, Plump, & Prioritize Your Compensation-Based Initiatives
Live webinar coming Tuesday, March 10, 2015
10:30 a.m. to Noon Pacific
Working with outdated pay ranges can create turnover, pay equity issues, low morale, and legal challenges. Also, granting merit increases without an accurate budget or distribution methodology has the potential to damage your professional credibility.
Budgets for consulting services remain tight, but your organization still has a strong need to “get the job done.” To handle basic compensation administration, you must feel comfortable with the process—from market-pricing positions and aging survey data to addressing wage compression and developing a merit matrix that recognizes performance and market relationships while adhering to budgetary requirements. These compensation challenges require careful and thoughtful consideration.
Don’t go it alone! Participate in our DIY compensation makeover session on March 10 when expert Barry L. Brown will show you, step-by-step, how to update salary market data and adjust pay structures. You’ll sharpen your personal compensation administration skills, and with this makeover, you’ll be poised to boost your professional credibility within your organization!
You’ll learn how to:
- Market-price positions and “age” survey data
- Update your pay structure using market data
- Handle wage compression using a simple approach
- Develop a merit budget that will impress your CFO
- Build a merit matrix that recognizes performance and relationship to market
- Respond appropriately to geographic salary differentials
- And much more!
In just 90 minutes, you’ll learn, step-by-step, how to update market data and adjust pay structures, as well as get expert guidance in basic compensation techniques. Excel spreadsheet and instructions will be provided.
Don’t miss it—claim your spot today.
Download your copy of Paying Overtime: 10 Key Exemption Concepts today!
Thanks for the reminder–this problem can creep up on you, but it should be addressed before it gets out of hand.