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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