Jean was understandably upset. "I've been here for six years," she said, "and I've just learned that they have hired a new person for almost the same salary that I'm making."
Salary compression, the practice of hiring new people at almost the same salaries as experienced people, is a common and worrisome management practice. Salary inversion, the practice of hiring new people at greater salaries, than experienced employees is less common but an even more crucial motivation destroyer.
It is, in my opinion, very difficult, if not impossible, to justify salary inversion. Such a practice drives off good, experienced people. And it will be hard for those who stay to maintain a long-term commitment to the organization's goals.
Salary compression, on the other hand, has been around for many years, and in all probability, will remain. As a manager said, "If we do not pay the going rate, we simply will not be able to hire good people." However, organizations can reduce the sting of salary compression.
First, managers should openly discuss salary strategies with present employees. If you have to hire at near existing-staff wages, let people know. Most will understand the need to hire good, new people.
Second, educate workers about market demands. If there is a short supply of certain skills, most people understand that you have to pay competitive wages to attract good people.
Third, grant higher wage increases to your higher performing, experienced people. Low performers, even though they may have been with you for a few years, should receive significantly smaller increases. This allows you to get more impact from the pool of dollars available for salary increases.
Fourth, consider offering some type of bonus or profit-sharing plan that will allow all workers to benefit from profitable years.
Finally, do not use salary compression as an excuse to avoid meaningful pay increases for high-performing, long-term employees.
Gerald Graham is a professor at Wichita State University and a management consultant. Send questions to The Wichita Eagle,
P.O. Box 820, Wichita, Kan. 67201.
Indicate whether you "agree" or "disagree" with the following:
1. Starting salaries that are higher than salaries for experienced people is a poor practice.
2. Managers should communicate salary strategies to all employees.
3. It may sometimes be necessary to pay beginning salaries near those of people with three to five years of experience.
4. Most employees understand the need to pay high starting salaries when needed skills are in short supply.
5. It is almost never a good practice to pay higher salaries to beginning people than you pay to comparable, experience people.
6. Market conditions often make it impossible to grant significant pay increases to long-term, high-performing employees.
7. Bonuses and profit-sharing plans help offset salary compression.
Although all authorities may not agree, all statements are correct except No. 6, which is incorrect.