Pay compression happens when the pay of an employee is very close to the pay of more experienced and higher performing employees in the same job or those in higher-level jobs like manager jobs.

How do you solve it?

1) You look for it. You do a pay compression analysis at least once a year and look for these scenarios. (Do not forget to consider overtime earnings in your analysis of the direct reports to managers.)

2) You budget for it. Recognize this happens when you have a short-term focus on getting candidates to say “yes” to job offers without also looking at current employees and their pay with an internal equity lens.

When I work with employers that have a few unique jobs, I don’t typically recommend a pay grade structure.

Why?

It is easy to market price each job and then calculate a competitive base pay range around the “market” number.  That base pay range is then used in the pay decision making process for new hires and current employees performing the job. 

I’ve been doing compensation work for more than 30 years.  And in that time, I have noticed that some compensation professionals make the shift to business partner/consultant, and some don’t. 

What do I mean?

When you start doing compensation work, you typically learn how to do the technical stuff.

One of the most frustrating aspects of being a new employee is the software and technology problems that occur during the onboarding process.

I have a friend who had to wait a month to start a new job. His new employer was not able to get the laptop and other software logins ready for him to start sooner.

And when he did start, there was a lot of software and file sharing tools that did not work well.  It took more than 2 months after his start date to get most of this fixed.

Here are the general guidelines I reference when developing a pay grade structure. 

Range spread is the percentage difference from minimum to maximum.

-            Nonexempt jobs – 25 to 30%

-            Exempt jobs – 40 to 50%

When people ask me how to earn more money, I typically share these tips.

1.      Become an expert in something not a lot of other people know how to do.  Make sure that expertise is solving a pain point that the buyer is willing to pay a lot for. 

3.      Surround yourself with others who are consistently exceeding expectations. You become like those people you spend the most time with. 

The Dewey Decimal System is used by libraries to organize items in their collections by subject. You can see the alpha and number coding on the spines of books as you look for the item you want on the shelves in the library.

What does this have to do with pay grades? 

Often, I work with employers who have pay grade labels that are “smart.” 

Pay transparency or communication is a major focus for many employers these days. 

Pay transparency is meant to shine a light on pay inequities and cause employers to fix them or not cause them in the first place.

One trend I see is the sole focus on base pay when employers are doing pay equity audits. 

There are often big differences in other rewards that may or may not be caused by discriminatory factors.

When it comes to making pay decisions, you can oversimplify and create black and white rules and policies. 

It sounds like this.

·        “The maximum promotional increase we can provide is 10%.”

·        “Yes, Sheri is getting more responsibilities and an opportunity to prove she can successfully perform higher-level work. No, there is no promotion with this right now because of our focus on expense control as a company.”  (Hello, dry promotion.)

There are a lot of things that employers don’t do or do that cause problems.

Dumb is not benchmarking jobs to competitive market data. You’re going to over and underpay your employees. It is going to hurt (be expensive) when the good employees leave.

Dumb is not allocating enough budget for merit increases, promotions, equity adjustments, and market adjustments each year.  The good employees have choices and the war for talent is ongoing. People help you achieve business goals. Pay them competitively, equitably, and fairly.

Pay transparency means sharing a little or a lot about how much you pay your employees.

Partial Pay Transparency:

• You share an open job’s pay range when it is posted. (And it is not a super wide range that means nothing.)

• You share pay ranges with managers for only the jobs their team members perform.

• You share a job’s pay range with the employee that is performing that job.

• You share the results of your pay equity audit with key stakeholders.

I’ve been using ChatGPT as an assistant in my work over the last year. 

Here is a list of how I have used it:

1.      To write job descriptions

2.      To write competencies and an associated proficiency rating scale

3.      To shorten performance rating definitions after writing the first draft for each rating

I was talking to a client today who needs to give an executive leader some feedback. We anticipate that this feedback is going to cause this leader to be defensive. 

So, I leaned on my training in nonviolent communication or NVC and shared this acronym: OFNR

Here is what that sounds like as an expression:

·        Observation: “When I see/hear…”

Pay transparency is another way of saying pay communications. 

·        Employee’s Question: What is my pay based on?

·        HR’s Answer: We base your pay on the competitive total compensation our competitors for talent are paying for a similar job.  And we also consider your performance as well as your relevant work experience, education, skills, tenure, and work location. What we are paying other employees doing substantially similar work is also used in the pay decision-making process.

I am working with an employer that has about 200 employees in the U.S. and Canada.  We are market pricing their jobs and developing pay grade structures.

One set of pay grades will be aligned to the 50th percentile of the external market.

The other set of pay grades will be aligned to the 75th percentile of the external market for their mission critical (competitive advantage, business imperative) jobs. 

Some employers are responding to the tight labor market by no longer requiring a college degree and instead are focusing on a skills-based approach to hiring.

The employers who are doing this are focused on finding the right talent to fill job openings by looking for the skills or competencies needed to do the work.  And they recognize that the requirement to have a bachelor’s degree sometimes gets in the way of that.

According to ZipRecruiter, 47% of small and medium sized businesses are more likely to not require a college degree from candidates vs. 35% of large businesses.

When you are doing interview preparation, it is important to be ready to answer this question: “What are your salary expectations?” 

Your answer will sound something like this. “I expect my base salary to be $X or more and to also receive a bonus (or sales commission) that brings my total compensation to at least $Y. And since this is a Director level job, I also expect a stock grant to align my interests to long-term value creation.”

Here is the issue.  If you don’t get the $X and $Y right, you may get taken off the qualified candidate list.  You can as easily overprice yourself as underprice yourself. And are you sure that the employer provides stock to the Director level?

Many rewards are tied to an employee’s base salary as a percentage. 

Here are some examples:

·        X% of base salary = target bonus

·        X% of base salary = target long-term incentive

·        X% of base salary = shift differential

Here are some scenarios to consider:

Scenario #1 - There are significant differences in pay between employees with similar job responsibilities and qualifications.  Example: Pat has a similar job title to you and has similar relevant work experience and a similar performance history. AND you find out Pat has a significantly higher base salary than you. This might be unfair pay. It needs to be researched by HR.

I recently went searching for a definition of burnout and looked for solutions. 

Here is what I found:

·        Dr. Christina Maslach has researched burnout for four decades. (There are other researchers focusing on burnout, but her name came up frequently.)