Pay Compression

When pay for new hires catches up with or exceeds that of experienced staff, squeezing the differences between levels.

Overview

Compression usually follows tight labor markets or minimum wage increases, when employers raise starting pay to recruit but do not adjust existing salaries at the same pace. Inversion is the extreme case, where newcomers earn more than veterans in the same role. Compression erodes morale and encourages experienced workers to switch employers to reset their pay. Fixes include equity adjustments, regular market benchmarking and wider pay bands, all of which cost money that employers often defer.