Series: Best ER Practices Tips

By Mark Lema, MHRM, SHRM-SCP, SPHR

 

Lately, we have observed a growing level of discontent among tenured employees when companies implement across-the-board wage adjustments without considering the impact on long-standing staff—especially those who have already reached the top salary rate for their position.

When this happens, employees may start expressing concerns such as:

• • “Why is the company not taking care of us, the loyal employees?”
  • “Why does a new hire make only $2.00 less than I do after all my years here?”
  • “There’s no appreciation for our years of service.”

Addressing these concerns proactively can help maintain morale and reinforce the value of employee loyalty.

Wage compression can be a significant source of discontent, particularly among long-serving employees who see new hires or less tenured colleagues earning salaries close to or even surpassing their own:

1. Implement Structured Pay Scales

• • Define Salary Bands: Establish clear salary ranges for each job level or role. This structure should reflect market benchmarks, experience, and performance, ensuring there’s room for growth within each band without immediate compression.
  • Regular Market Analysis: Keep salary scales updated with periodic market surveys to ensure they remain competitive and fair, reflecting industry standards and inflation rates.

2. Performance-Based Adjustments

• • Merit Increase Link salary increases directly to performance evaluations. Employees who have reached the top of their pay scale can still receive bonuses or other forms of compensation like stock options or profit sharing if they continue to excel.
  • Skill-Based Pay: Consider rewarding employees for acquiring new skills or certifications that add value to their roles, thus justifying higher compensation within or beyond existing salary scales.

3. Transparency in Compensation Philosophy

• • Clear Communication: Articulate your compensation strategy openly. When employees understand how and why salaries are set or adjusted, they are more likely to perceive the process as fair.
  • Annual Compensation Reviews: Conduct yearly reviews where you discuss not just salary but total compensation including benefits, which might be more valuable to long-term employees.

4. Longevity Bonuses and Recognition Programs

• • Service Awards: Implement longevity bonuses or service awards that acknowledge the contributions of long-term employees, which can be separate from base salary adjustments.
  • Recognition Beyond Pay: Sometimes, recognition for tenure or significant contributions can be non-monetary, like additional vacation days, flexible working conditions, or public acknowledgment.

5. Career Pathways and Advancement Opportunities

• • Internal Mobility: Facilitate career progression by offering pathways for experienced employees to move into new roles or higher-grade positions, which can come with salary increases.
  • Professional Development: Invest in training and development programs that prepare employees for advancement, reducing the need to hire externally at higher salary points.

6. Addressing Compression When It Occurs

• • Individual Adjustments: If wage compression is identified, consider one-time adjustments for affected employees to bring their salaries in line with new hires.
  • Retroactive Adjustments: If possible, retroactively adjust salaries for those who have been underpaid relative to new scales, ensuring they feel valued for their tenure.

7. Legal and Compliance Check

• • Equity and Compliance: Ensure all adjustments comply with equal pay laws and do not inadvertently discriminate based on any protected characteristics.
  • Documentation: Keep meticulous records of all salary decisions, especially in cases of adjustment, to justify actions if questioned.

8. Employee Feedback

• Surveys and Discussions: Use employee feedback to understand perceptions of fairness in pay. This can guide future adjustments and highlight areas where compression might be a concern.

LAAHR.com, we help employers navigate these complex issues with tailored advice, ensuring your compensation practices foster a motivated and loyal workforce. By implementing these practices, you can mitigate wage compression, maintain employee satisfaction, and support your organization’s long-term success.