Managing Pay Compression: Challenges and Solutions
Dealing with pay compression is a common concern for businesses with a tight labor market. The negative impact of this problem can be mitigated by implementing a compensation strategy. For example, you may wish to consider whether or not your employees’ salaries should be based on their gender, race or disability.
Increased Staff Turnover
Pay compression can be a thorny issue for many companies. But it can be addressed. If you are experiencing pay compression, the first step is to evaluate your salary management practices. You should also train your managers on these topics. Educating your board on the issue can be helpful as well.
When a company experiences pay compression, employees often feel as though they are being mistreated. It might result in a hostile workplace. Those unhappy with their wages may decide to leave their jobs. This is particularly true for high performers.
Wage compression can be a legal concern as well. In some cases, the Equal Employment Opportunity Commission (EEOC) has investigated complaints of pay inequity under the Equal Pay Act. A good reputation for fair compensation is a valuable asset to a company’s bottom line.
Companies can combat wage compression by combining different pay structures. For instance, they can offer incentive pay for solid performance. They can also increase the base pay of specific roles. A bonus for a high performer can boost productivity and morale. After receiving a promotion or a retroactive pay increase, many employees receive back pay. When mistakes are made in processing a paycheck or recording the correct hours worked, you might need to make arrangements for back compensation. However, you need to understand first what is back pay to know if a payroll error resulted in them receiving less money than they were due or if they worked overtime but failed to record it on their timesheet.
Having a company-wide audit of pay can help you identify pay issues. An organization should conduct a formal analysis every six months to track the problem’s extent. The correct solution will depend on the organization’s pay management goals.
A Compensation Strategy Can Help Mitigate The Detrimental Impacts of Pay Compression
Pay compression is one of the more complicated issues that companies face. It can have serious consequences, such as unproductive turnover and a decline in productivity. Even though it may seem counter-intuitive, pay equity is essential for every individual.
Managing pay compression requires the attention of the entire organization. The company’s compensation strategy should address the market value of different jobs and pay ranges. A company’s compensation strategy should also be flexible and adaptable. Keeping this in mind will ensure that the compensation structure is up to date.
Besides addressing the market value of different jobs, a compensation strategy should address employee engagement. If there is a lack of communication between managers and employees, the morale of both parties can suffer. This can deter future hiring and discourage current customers from engaging with the company.
It is also possible to increase employee motivation by promoting pay equity. For example, a bonus for strong performance can boost productivity and restore faith in pay equity.
Another important consideration is the amount of leave time a company offers its employees. More paid leave days for certain employees can be a sticking point for others.
Pay compression can occur when an organization fails to map its compensation plan. A lack of clear guidelines can lead to an out-of-date and unsustainable compensation strategy.
A Tight Labor Market
A tight labor market can lead to paying compression. Companies will not raise the pay of existing employees but will pass on similar increases to new hires.
Pay compression can severely impact employee morale, productivity, and even leadership. With proper compensation, employees will feel appreciated and may choose to leave. However, pay compression can be fixed if employers take action.
A company-wide salary survey will help identify pay compression issues. Having a consistent pay structure for all employees will be a great start, but companies must review their compensation levels regularly.
There are several ways to mitigate pay compression, such as offering employees a four-day workweek. Also, businesses should consider bulking up their benefits. For example, a student loan benefit may be a practical option.
The National Labor Relations Board reported that union representation petitions rose 56% in the first three quarters of Fiscal Year 2022. Employees can also learn about pay inequalities through online research. Once workers become aware of pay disparities, they start spreading the word.
A tight labor market requires companies to offer competitive salaries to attract high-demand talent. In addition, companies should pay close attention to the salary range of new hire-tenured employee pairs.
The best way to prevent pay compression is to create a compensation structure that is both flexible and clear. Ideally, the salary range of each employee will be tailored to the level of proficiency they perform within their respective roles.
Pay Discrimination Based on Gender, Race or Disability
Pay discrimination is not paying someone the same amount as another person because of their gender, race, disability or other protected characteristics. The Equal Pay Act prohibits this discrimination and protects employees who complain about it.
To qualify for the protections of the Equal Pay Act, employers must pay all employees the same amount for doing similar work. For example, if an employer pays women less than the minimum wage, that is pay discrimination.
However, there are exceptions to the ban on pay discrimination. It may be permissible if the pay differential is based on merit, for example, or if the difference is based on the quality or quantity of production. In addition, the law prohibits compensation discrimination based on religion, national origin, age and genetic information.
Although it is not required, employees who feel they have been the victim of pay discrimination should file a complaint with the EEOC. EEOC attorneys will help victims pursue their claims.
There are different filing deadlines under the Equal Pay Act. It is essential to know the deadlines for filing a claim to make sure your rights are protected. This information is available on the EEOC website.