Have Some Compassion for Compression!

Imagine if you will….You are a good employee and have worked in the same position for several years for the company. You have steadily increased your knowledge, your skills and your pay through merit increases. One day, a mass email is sent out by Recruiting asking for employee referrals for the same position you hold. You remember that your friend wants to work at your company and you contact them to let them know to apply. Your friend interviews and gets selected for the position – how great! In their excitement, your friend tells you their pay rate. And you sink in your chair. They are making only slightly less than you are right now which is much higher than the rate you started at. How could the company do this to me? Have I done something wrong? I have known my friend for years and they are smart but they don’t have the experience or knowledge I do. What is going on?

Pay compression. That is what’s going on.

Pay compression is not good when it occurs. It can cause problems with morale and sometimes even legal issues. Compression can happen when everyone least expects it. It can creep up and wreak havoc to even the best of companies. There can be many reasons for compression including rapid growth for the company and even the economy. The best remedy is to be vigilant about what you are paying existing employees and what you are offering to new hires. However if your incumbent’s pay rates start to meet your new hire pay rates for the same position there are solutions, but the solution should happen quickly and transparently in order to fix the problem.

The first thing to do is to figure out what happened – why is the newest member of your team making as much as, or even worse – more! – than, your fully trained staff performing the same role? There are times we hire a stellar candidate and pay them more to just get them in the role, when they are perhaps overqualified or expecting a salary that is not equitable compared to the incumbents. Sometimes hiring decisions are made that might need to be reevaluated. Take a moment to assess the situation fully. Focus on all potential positions that are effected and come up with a solution.

Next, transparently address the issue. Honestly explain what happened to all affected parties and share your solution. Explain what steps will be taken to quickly repair the current situation. This might require the company to “eat some crow” and accept responsibility. This is where the company might give a unilateral increase to all those employees who are below a certain level or use variable pay to compensate your long term performers. If the solution is solid and fair, the sting will hopefully only be temporary. Then it’s on to the last step.

Finally, FIX IT! Take a good, hard look at what happened. Check the market for the position. Maybe it is time to look at using a different pay philosophy for the affected area(s). There might be some pay policies that need updating or market analysis that needs to be done at this point. Put processes in place to prevent future compression outbreaks.

Once you are back on the straight and narrow, do what can be done to ensure compression doesn’t happen in the future. Sometimes an annual review of all employee pay rates for certain roles can help catch potential compression. The old saying, “An ounce of prevention is worth a pound of cure”, is spot on when it comes to compression problems in the workplace. Taking time to review your compensation program annually might nip this type of problem in the bud.

Don’t forget to CELEBRATE!