Salary Compression

Quick question on a complicated subject. How do you guys handle folks that were hired several years ago that have worked themselves up to a certain salary. This salary is now what you have to "hire in" people at. So...there gets to be smaller and smaller discrepancy between the current employees and the new hires.

Case in point. Registered nurses salaries have skyrocketed. In order for us to attract good candidates, we have to pay what the going rate is in today's market for an RN (which is considerable). Some people who have been with us 5+ years feel it is not fair for them to make about the same as a new hire. (These are not new grads - but people with considerable experience. We don't hire new grads).

If we adjust salaries every time we make a new hire, this would get out of control very quickly.

Any insights? Advice? Opinions?



  • 6 Comments sorted by Votes Date Added
  • [font size="1" color="#FF0000"]LAST EDITED ON 01-25-05 AT 09:39AM (CST)[/font][br][br]By comparison, new graduating accountants in are often brought into the CPA firms at salaries at or above those that have been working up to 3 years. It is an unfortunate fact of the industry. Those that stay in know that the difference begins to take effect later in their career - it is just part of the deal. Consequently, the turnover and retention numbers reflect all that pressure as other industries find it a fertile recruiting ground for experienced, knowledgeable people.
  • Sounds like you're cornered in a tough situation. Your compensation system is telling your ees that loyalty and experience in your organization are worth peanuts, and if they want a big raise they'll have to go work for someone else. The big question is whether this perception is true and whether it hurts morale, turnover, etc.

    Good luck!

    James Sokolowski
  • I would say that's right. We were faced with that issue in our IT department back during the height of growth in IT salaries. Not only did it cost more for entry people, but we felt we had to adjust across the board or risk losing our talented (and trained) mid and senior level IT staff. it killed us to do it, because it resulted in some bigger increases that we were used to, but I think it was the right thing to do competitively.
    Now, of course, tech salaries have dipped, and for those who are still with us they are probably now paid higher than market. Which creates a phenomemon where someone might be reluctant to leave, sometimes good and sometimes not so good. But I still think it was the right thing to do.
    When we wonder whether our salaries are out of synch we usually do a compensation study of those positions, and if we learn our salaries are out of synch with our industry competititors we decide on a strategy for fixing. We can't always do all the fixing at one time, but we come up with a plan.
  • We're facing the same compensation issue here, but with police officers. An academy graduate starts at the same rate as an officer with 5 years of experience. I be interesed in knowing how others 'fix it.' Increasing the 5-year officer begins a domino effect up the chain of command. We're talking $$$$
  • I'm surprised at your dilemma. In WI, we're highly unionized and all of our labor agreements have some type of rigid step program in the pay system which starts employees off relatively low and moves them up in 4 to 6 years. Most of us don't even have lateral entry, so once you get up in the pay scale at one employer, you aren't going to move. You can't recruit police officers at less than you're paying one with 5 years of experience?
  • We do have a rigid step table. Each year, the Board has approved the 4% increase between steps. And each year the Board also approved a 4% increase in the starting pay for a new recruit (certified). So the compensation offered to new recruits kept pace with the officer who had already been here. This year I'll recommend that we leave the new recruit's compensation unchanged; otherwise the same thing will happen with the officers we hired this year. I'm working on the math and a budget request to bump up and retain the officers we have. This shouldn't be hard to justify. The MTA (Maryland Transportation Authority) is recruiting at $6K more than we are for academy graduates.

    Dasher, where are you?
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