Dealing with Wage Compression Issues

Stephen Miller, CEBS, who is an Online Manager/Editor covering compensation and benefits for SHRM Online, wrote an excellent article a couple of weeks ago titled, “As Minimum Wages Rise, Prepare for Pay Compression Issues.”

The first two paragraph of his article are presented below.

Pressure to increase wages for the lowest-paid employees, driven by the need to attract workers and to stay ahead of rising local, state and federal minimum wage mandates, is “a red-hot compensation topic right now,” according to a panel of pay authorities who spoke at WorldatWork’s 2021 Total Rewards Conference, held virtually in October.

Raising minimum pay levels can require revisiting pay ranges throughout the compensation structure, the panelists noted. As a related issue, many benefits costs, such as 401(k) matching contributions and incentive bonuses, are linked to employees’ base pay and will become more expensive as wage rates trend higher.

Stephen’s article goes on to say that due to the above, pay compression issues will be present and HR and financial professionals need to have a strategy to deal with these issues to avoid losing valuable employees or having a morale problem for employees’ where their pay has been compressed. Suggested alternatives include correcting any pay compression as you are raising minimum wages or handling the compression issues over a period of time.

There have been more requests for our firm to review potential compression issues as our clients are dealing with the need to raise their minimum wage salary range structure. Stephen completes his article with an excellent “Planning Ahead” list of steps to address pay compression for organizations.


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Salary Range Structure Advantages

From time to time some of our clients will feedback to us that they don’t like salary range structure as it keeps them from being able to offer new hires and/or pay existing employees whatever they want to provide them. Thus, there is a tendency to throw out the salary range structure for the reason that it is too restrictive.

We believe salary range structure(s) is an effective compensation management tool and the advantages outweigh the disadvantages for organizations. Below are common pluses for establishing and adopting a formalized salary range structure.

  • Allows for a starting minimum, market midpoint and maximum pay range for each position based on the internal job value and current external market pay levels.

  • Provides a communications tool with the employee to speak to their development within the position and how their pay can increase through performance and time.

  • Creates consistency and defensibility around pay equity, pay adjustments, promotional increases, and other factors influencing pay.

  • Can slot in new hires and promoted employees into a new position based on what they bring to the position as it relates to experience, education, and skills.

  • Determines in concrete terms those that are behind, in the mix, or ahead based on where the employees are located within their respective salary ranges.

  • Establishes multi-level career ladders for career-minded employees that desire to progress up through the organization.

  • Maintains a maximum for each position to avoid overpaying and using those funds to ensure employees in the lower end of their salary ranges are moving up towards market midpoint.


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The Rising Tide of Minimum Wage

Bruce and I just completed an article titled, “The Rising Tide for Minimum Wage” for the HR Professionals Magazine September, 2021 issue that will be published in early September. This article provides information on several factors that are influencing a continuous rise in minimum wages for the lowest paid employees across the United States. The HR Professional magazine is a great resource for human resources and compensation professionals. The articles published in this professional magazine are current and comprehensive. Please seek an online copy of the HR Professional magazine and add this resource to your list of sources for staying current in the field of human resources. Here’s a link to their website: HRProfessionals Magazine


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Inflation’s Impact on Compensation

Stephen Miller, CEBS has written a three-part series article for SHRM titled “Inflation’s Return Will Affect Compensation.” The first part was published earlier this week on Compensation and the other two parts will focus on health care and retirement savings. Through his research and discussion with other thought leaders, he mentions several factors that are going to drive up inflation and compensation. These include:

  1. Increased federal unemployment payments have reduced the labor supply;

  2. Disruptions within supply chains have placed inflationary pressures on prices and wages;

  3. Consumer Price Index (CPI) in May rose 5 percent from 12 months earlier which is the largest yearly gain since August 2008;

  4. Federal Reserve Bank of St. Louis indicated that the economy is seeing more inflation than they expected which they believe could lead to an interest rate increase late next year.

Though it is still early for all the big compensation consulting companies to provide their 2022 wage and salary growth figures, Stephen mentions Trading Economics, which is an online platform providing historical data and economic forecasts, is forecasting a 3.6% increase for 2022 and a 4.0% in 2023. He also mentioned that Kiplinger is forecasting that the Social Security cost of living adjustment (COLA) for retirees will be around 4.5% next year.

Stephen completes the article by mentioning what some other compensation experts believe employers will need to focus on as inflation returns after being a non-factor for several years. These include:

  1. Increase hourly rates by $1 to $2 every three to six months as a retention tool;

  2. Retention and sign-on bonuses for professional and management-level positions;

  3. Revisit total rewards strategies for the post baby boomer generations.

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Benefits of a Current Classification and Compensation Plan

We recently completed a classification and compensation study for a public organization where the last formal study was done over 20 years ago.  With this much time between formal classification and compensation studies, the normal outlook would be that the organization’s classifications and compensation plans would be dated and needing a complete overhaul.  We were pleased to find that the Human Resources Director and HR Administrator had worked diligently to keep the organization’s job classifications current with ongoing internal reviews and updates.  In addition, the organization’s compensation plans were evaluated and updated with semi-annual external market pay studies. 

We were able to affirm and align the organization’s classifications and compensation plans based on our internal and external assessments and address dated policies and slightly inconsistent grade and range structures.  This organization did not suffer a classification and compensation plans earthquake or sticker shock from the new study because of the ongoing internal and external work performed by the Human Resources Director and HR Administrator.  There are several benefits derived from maintaining a current classification and compensation plan. Some of those benefits are listed below.

  • Ongoing alignment of job classifications and compensation pay grade placements
  • Internal job and pay equity and external pay competitiveness
  • Consistency with compensation planning and budgeting per fiscal year
  • Earthquake and sticker shock prevention from new classification and compensation findings
  • Linear classification and compensation plans and less pocketed or over-utilized pay grades
  • Greater transparency and consistency with job assignment and pay expectations
  • Ability to hire and retain competent and skilled talent for the organization

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Taking Advantage of the Reset

We hope everyone that we have served over the past 35 years is safe and well and doing everything they can to protect themselves and others around them from the Covid-19 virus.  We have been able to take care of our clients’ needs during this time but are looking forward to the day we can all be in closer contact with our business associates, clients, family, and friends.

It has been our honor and joy to provide our copyrighted 15-factor Job Evaluation and Salary Administration Program (1985) in an automated format known as DBCompensation since 2005.  In addition, we have several clients using the DBDescriptions software program that was developed and offered starting in 2010.

In the coming weeks and months, many businesses that have been shut down or had to limit their business due to the pandemic will be returning to some level of operations in the coming weeks with the intent to be at full operation over the next few months.  We believe this is a great time to assess your compensation and benefits plans with the intent to ensure fair, equitable and competitive total reward packages are in place. 

If you aren’t sure or you desire a more formalized structure that we have implemented since 1985 and offered commercially in an automated format since 2005, please contact us.  Management and owners love the consistency, detail, defensibility and a realistic road map to follow.  Employees love the company’s commitment to create an equitable, competitive and growth potential structure.


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2020 “Living Wage” and “Minimum Wage” Intersection or Roundabout?

An intersection is a point at which two or more things intersect, especially roads. (Merriam-Webster)

A roundabout (also called a traffic circle, road circle, rotary, rotunda or island) is a type of circular intersection or junction in which road traffic is permitted to flow in one direction around a central island, and priority is typically given to traffic already in the junction. (Wikipedia)

After the nation is able to heal from the Coronavirus crisis and the corresponding forced economic recession to save human lives, government officials and employers will be working to bring our nation’s workforce back to pre-recession productivity levels and employees will be pushing hard to reestablish their previous compensation and benefit packages.

Compensation and HR professionals are keeping their eyes on two and maybe more things that are intersecting or circling and will have an impact on future compensation levels for the lowest paid jobs in our country.  Living wage discussions and new state minimum wage laws are raising compensation levels above the current Federal minimum wage rate of $7.25 for non-exempt positions.

Will Living Wage rates (Reference: M.I.T. Living Wage Rate Calculator) be given a right-of-way status at a four way intersection with state minimum wage laws, proposed Federal minimum wage rates from forthcoming legislation to gen up our post-recession economy and/or demand greater than supply job economic factors.  Using a roundabout circular intersection, which of the four mentioned items will take a priority lead position on compensation minimum wage policy decisions?

In our compensation consulting work with municipalities, we are seeing more requests by city council members for higher minimum wages or living wages for the lowest paid positions and employees that fill these jobs.

The next time you roll-up to a four-way stop intersection or press the gas pedal to enter a circular roundabout, we want you to think about the lowest paid employees and how they make a living and cover basic shelter and food expenses with $7.25 to $13.00 minimum hourly wage rates.

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Exodus of Baby Boomers Helping to Fund Higher Employee Pay Adjustments

In a Forbes article titled, Baby Boomers Retiring Rapidly: Are Successors Prepared written by Maureen Metcalf, Forbes Council Member and CEO of Metcalf & Associates, she refers to research by Bonnie Hagemann and co-authors in their book “Leading with Vision” that baby boomers are leaving the workforce at a rapid rate of 10,000 per day or approximately 1 baby boomer every 9 seconds.

In our compensation consulting work, we’re seeing this phenomenon unfolding with our private and public sector clients.  We have a public government client that experienced an average $3.75 hourly pay difference between leaving employees’ average pay and their new hires’ average pay in 2018, and they are on-track for a $2.44 difference in 2019.  This may not seem like much money but it equates to $640,000 annual wage savings in 2018 and approximately $724,000 savings in 2019 based on a 15% turnover rate.

Some clients are redistributing these baby boomer exodus wage savings to help fund higher annual employee pay adjustments.  The 2019 annual WorldatWork Compensation study is projecting a national average of 3.3% for employee pay adjustments in 2020. The represents a new historical high after years of 3.0% or less average annual employee pay adjustments to base pay.

Human Resource and Compensation professionals need to help their management teams with strategic redistribution of baby boomer wage savings and succession planning during the next ten years.  The 3rd and 4th quartile wages will be out the door during the next decade and its recipients will be on the beach, traveling in an RV or parachuting out of a plane like past president George H.W. Bush did to celebrate his 90th birthday on June 12, 2014.

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Salary Budget for 2020 and Other Important Compensation Facts

According to a recent article in Workspan Daily written by Brett Christie, staff writer at WorldatWork, the projected 2020 salary budget increase will be 3.3%.  Given that this comes to fruition, it will be the third year in a row that we have seen an increase: 2017 – 3.0%, 2018 – 3.1%, 2019 – 3.2% and 2020 – 3.3%. Some other interesting compensation-related facts from the WorldatWork’s 46th “Salary Budget Survey” that Brett mentioned in his article include the following: Merit Budgets: 2019 average was 2.9% with a projected 3.0% for 2020 Promotional Increases: Average grew to 8.9% Salary Structure Adjustments: 2019 average was 2.2%, up from 2018 of 2.0% and a projected 2.1% for 2020 We are moving into the late summer and many of our clients are already starting their compensation reviews and formulating their budget plan for 2020.   The above information can be useful data as we all prepare for 2020. Learn more by visiting or or request a free consultation by visiting

How Are Organizations Utilizing Retiring Baby Boomers’ Compensation?

How Are Organizations Utilizing Retiring Baby Boomers’ Compensation?

One of our public clients has experienced 17% turnover during the first eight months of 2018. The average tenure of the employees leaving this organization is almost 5.5 years and a measurable group of these employees are retiring baby boomers.

The average pay variance between the new hires and terminated employees for the above mentioned client is 16.7% or about $6,365 dollars per employee. With the impact of daily baby boomer retirements, we estimate that organizations will have between 10% and 25% in total compensation dollars to reallocate within their annual employee compensation budgets.

For small to large organizations, the amount of freed-up dollars associated with baby boomer terminations due to retirements can be significant and useful for taking care of high priority compensation needs. Some of these needs will include new hire replacements, funding variable pay incentive plans, addressing pay compression and pay inequity issues, bonus pay for top performers and a variety of other pay initiatives.

For organizations with remaining baby boomers that will retire in the next three to five years, how will you plan to use their 4th quartile base pay salaries to fund other compensation needs?

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