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March 15, 2004
Do
You Know...
Maryland's state dinosaur sounds similar to your favorite
HR consulting firm. Astrodon johnstoni, a sauropod, lived
in coastal Maryland during the Early Cretaceous period (130
- 95 million years ago). You can learn more about Astrodon
johnstoni by visiting www.statefossils.com.
Although Astron Solutions began operations in a more
recent time period, our commitment to customer service is
almost as long-standing as the fossil record.
Thanks to reader Rich Virgilio, SPHR, of Johns Hopkins
University's Applied Physics Lab, for alerting us to this
interesting finding!
Creative Solutions to the Thorny Issue of
Pay Compression
Compression occurs when pay differentials are too slight to
be perceived as fair between two unequal positions, i.e.:
- Between current employees and new hires
- Between supervisors and their subordinates
The former case most often occurs when recruitment for hot
jobs is a priority. Often, competition for the most talented
new employees creates a situation where employees are
effectively rewarded for job-hopping by receiving higher
salaries or sign-on bonuses.
The latter case often occurs in certain industries where
non-exempt subordinates have a leg up on their supervisors;
for instance, in healthcare, nurses earning overtime often
make more than their supervisors. It is also possible
between exempt supervisors and subordinates whose midpoints
are too close for comfort.
According to ProQuest Information and Learning Company,
educational institutions are among the hardest hit by
compression, with 28.6% struggling to resolve compression. A
quarter of healthcare organizations are also affected, and
21.4% of financial firms.
Compression expresses itself as a morale problem. For
obvious reasons, it is generally the more experienced or
higher-up employee who voices discontent, but the source of
disgruntlement affects everyone at an organization.
Simply put, compression results from the lack of a cohesive,
long-term compensation plan. Across-the-board salary
increases will, over time, result in compression, as will
the practice of awarding higher percentage increases to
lower-paid workers. The adrenaline rush brought on by
understaffed hot jobs is responsible for a great deal of
industry-specific compression - and the general state of the
economy over the past years has worsened matters.
With so little money in the average organization's coffers,
how can the problem of compression be addressed?
A comprehensive audit of an organization's compensation
system is an essential first step. If an organization lacks
qualified personnel, or internal power issues necessitate an
outside opinion, outsourcing this function is common, and
may lend a much-needed objectivity to a contentious process.
As every organization has different needs, and will be
dealing with these negative effects for a culturally
specific reason, there is no simple answer to the quandary
of compression.
A solution utilized by many organizations during times of
fiscal stress is the replacement of annual pay increases
with self-funded incentive programs, which tie bonus
payments to the achievement of specific goals. When
achieving the goals saves the organization money, the same
money is applied to a one-time cash payout that focuses
employees on performance.
In cases where a demand for hot jobs has created
compression, creative rewards may be the answer. There are a
number of options to explore for an employer seeking to
recruit and retain a specific position without increasing
pay outright. Among them: the aforementioned incentive
programs; non-monetary rewards, such as flexible work
schedules; and career path programs that assure employees
that their hard work will be rewarded with increased
responsibility and appropriate pay.
Key to the monetary rewards described above is their
controlled nature. Any solution to the problem of
compression will have to be implemented and with an ultimate
compensatory goal in mind. With a tight budget and a
less-than perfect compensation system in place, it's an
organization's duty to plan well and carefully to do away
with compression.
Is pay compression an issue in your
organization?
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Looking for a top-notch presenter for your human resource organization's meeting? Both Jennifer Loftus and Michael Maciekowich present highly-rated sessions on a variety of compensation and employee retention issues. For more information, send an e-mail to
info@astronsolutions.com.
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Copyright 2007, Astron Solutions, LLC
ISSN Number 1549-0467
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