With all of the emphasis today of attracting talent at current market value, many companies have found themselves trying to juggle matters of fair compensation for their current employees.
The issue of salary compression can raise its head when newly hired employees or those who have gotten a recent promotion receive a salary that is close to or in some instances, even higher than colleagues in the same position but with years of experience behind them.
It can be difficult to keep ahead of what’s going on in the employment marketplace. According to Workforce.com’s CompAnalyst Market Data, the rate in today’s job market for a software engineer 4 rose by 4.5 percent between July of 2015 and July 2016. While most companies tend to stick with a traditional 3 percent increase each year for employees, bringing in someone at a higher rate of pay compared to that of employees that have been there longer can leave current employees feeling unappreciated. Salary compression is not illegal. However, in an age where wage disparity is a hot topic, overlooking the dedication and hard work of current employees can be what many HR professionals describe as being ‘demotivating’.
A great deal does depend on performance data for each employee. A current employee, if they are performing at or above expectations, by all rights should expect to receive a greater salary than a newer colleague will. If, on the other hand, the current employee is underperforming, then they justifiably may get no salary increase at all. Depending on the situation, the management for the underperforming employee can work with them in order to improve performance and earn more.
The issue of salary compression can be but isn’t always limited to a single department in an organization. Sometimes the perception can be felt across the entire company. In today’s marketplace, the reality is that some departments have salaries that rise at a higher rate than others.
In order for an organization to stay competitive, it has to raise the salaries of those departments that bring more value in order to draw and retain talent in those areas and be able to justify to employees in other departments why their salaries are not rising at a faster rate. For many organizations, transparency with regard to time with the company, compensation for their position and offering workers a way to advance their career and increase their earning potential is the best approach to avoiding salary compression.
Things have changed drastically over the past few years in the job market. Not all employees have the same set of skills or value to a company’s bottom line. Salaries for certain types of position have risen at a higher rate than other types of positions. It’s important to offer employees just compensation while considering all factors including time with the company, job skills, and performance that can directly affect compensation in terms of salary and benefits.
At NetPEO, we are a network of companies that can help you find the right fit for the positions you need to fill and help you to manage employees and the benefits that your organization offers to them. We feature HR outsourcing, employee benefit management, and employee leasing services.
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