MANAGEMENT
ARE YOU A VICTIM OF SALARY COMPRESSION? by Marilyn Moats Kennedy MSJ
D
uring the last recession, employees worried more about unemployment than equitable compensation.
The reverse is true today. Salaries are now so fluid that a salary range is really a target, not a box. Here’s an example. A hospital which hired 2004 nursing graduates for $41,000 plus a $3,000 sign-on bonus is offering $46,000 with a $5,000 sign-on bonus to 2005 graduates. How does the class of ‘04 feel about this? Since they are now, even with a raise, earning $3,000 less than the neophyte class, need you ask? In compensation circles, this condition is known as
salary compression. The shortage of labor means more dol- lars are chasing fewer candidates. Organizations are con- tinually forced to raise offers because their competitors are doing so. As a result, the range being offered for a particu- lar job is compressed or flattened to one number. The re- sult? We’ve met five-year employees of a bank who sit next to people hired last month who earn 20 percent to 30 per- cent more. Virtually every other industry (not just high tech as most people believe) is also having salary compression troubles. For new hires, nirvana will last one year or until their
salaries are topped by even newer hires. The potential for widespread dissatisfaction then, followed by defection of the best workers, is great. Let’s follow a worker hired last June. He was hired by
a hospital as a middle manager for $62,000. In September he was given a $5,000 increase because another middle manager was hired at $68,000. (Note the discrepancy. The hospital gambled it could get away with a $5,000 increase rather than $6,000.) In January, a third manager was hired at $72,000. Now both the 2005 hires await salary adjust- ments while perusing the want ads. They will probably get the money since the hospital’s only option is to pay even more money to replace them and only if they yell loud enough. If the hospital isn’t quick, however, the managers will be out the door. Where will this stop? Not until the demand for workers
drops sharply. What about all the people who faithfully 40 Focus Journal Winter 2012
worked through five years of salary freezes and have no idea the person next to them in report, with less experience and who does the same job makes 20 percent to 40 percent more money? The organization certainly won’t pass out clues. As HR is frantically trying to staff, sometimes at any price, will they tell loyal, hard-working employees they’re being ripped off? Not likely. In low-turnover departments employees have no idea
what newly hired counterparts at other organizations are earning unless they’re job hunting or have a good friend who shares salary information. Even if they find out they are falling behind, they won’t want to confront the boss. They may assume or hope the friend is exaggerating. That’s rarely the case. After the initial shock of learning how dramatically un-
derpaid they are, many employees will rationalize by con- gratulating themselves on the wonderful benefits package they enjoy, the short commute, the supportive boss, the great food in the cafeteria, etc. That honeymoon lasts about a month. Unfortunately, being underpaid is like having a rock in your shoe. Nothing takes the pain away except re- moving the cause. In two months, productivity begins to suffer. In six months he/she becomes a reluctant job hunter or, worse, allows resentment to fester until he/she blows up at the boss or co-workers over nothing. Some workers burn silently and reduce effort to match the salary shortfall. This is a career-endangering strategy but not uncommon. Younger workers usually confront immediately, de-
manding parity. A generational characteristic of the twenty- somethings (the parents of many were laid off at least once between 1990 and 2000) is their unwillingness to listen to explanations from the boss. The more marketable the per- son, the shorter the attention span. If refused parity, they ei- ther resign on the spot or find a new job and then resign. Older workers nurse their resentments and wonder
whether they should fight for more money. Instead of saying, as younger workers do, "It’s payback time, I want my share", they equivocate, encouraging organizations to believe they can get through this period without putting every available
continued on next page
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44