Pay Compression
Pay compression occurs when junior employees are paid at salaries higher than those of their superiors. This often happens in the information technology (IT) sector. Due to the shortage of skilled IT professionals, companies sometimes have to offer a job applicant a very attractive salary package for them to give up their stock options and other perks in their former companies. The result is that the newcomers may be paid more than those who currently work in the company. The resulting low morale can lead to decreasing productivity and higher absenteeism and turnover. One way to identify pay compression is to examine the relation-ship between salaries and incumbents' years of experience with the company. Solutions for the problem of pay compression include the following: (1) re-examining how many entry-level people are needed; (2) reassessing recruitment itself; (3) focusing on the job evaluation process, emphasizing performance instead of salary-grade assignment; (4) basing all salaries on longevity; and (5) giving first-line supervisors and other managers the authority to recommend equity adjustments for incumbents who have been unfairly victimized by pay compression.