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  • Address Pay Compression or Risk Employee Flight

SHRM.com

Address Pay Compression or Risk Employee Flight

Jun 1, 2018

Preventing pay compression between tenured employees and new hires and between managers and their direct reports can keep experienced employees motivated and productive—and less likely to leave, according to findings from a recent report by pay consultancy Pearl Meyer.

"Salary compression leads to low productivity and morale and high turnover," said Rebecca Toman, Pearl Meyer's survey operations manager, who spoke at WorldatWork's 2018 Total Rewards Conference, held recently near Dallas. "With unemployment down, employees are looking for jobs with better total rewards packages. In this environment, employees will not tolerate inequitable pay."

Employers should consider off-cycle merit increases to make current employees' pay at least equivalent with recently hired graduates, Toman suggested.

Organizations should also train line managers to discuss salary compression and other pay issues, Toman said, and to refrain from making unhelpful comments, such as responding to requests for a raise with, "If it were up to me …"

States and localities raising the required minimum wage, which is occurring across the U.S., "can be a huge external influence on compression," Toman said. If employers respond by increasing their hourly wage rate, and nonexempt workers are logging in lots of overtime, "hourly workers may be making more than salaried contributors, and even more than their managers," she noted.

Compression can be avoided with proper planning and hiring-manager education, and its effects mitigated with pay adjustments and other benefits. If the issue is not confronted, however, "over the long term, companies will pay the price for ignoring compression," Toman said.

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