- Blog post
Salary compression: How managers can ease the sting
I had a bad reaction after reading a recent article about “salary compression” – that is, what happens when starting salaries for new recruits to an organization increase faster than those for existing employees.
I recognize the problem. Older workers tend to resent that their annual percentage increases drop the longer they stay with the company. In the article, the solution was to make them happy by giving them perks like free cars, free cell phones, free health club memberships and even all-expenses-paid vacations.
Rewards like these are nice and should be given when appropriate. However, there’s another solution, one that has nothing to do with money or giveaways. It’s called “managing expectations.” That’s something good leaders are supposed to be able to do, right? In fact, if one of my managers came to me and said, “My older (higher-paid) workers are ticked off because they’re getting 2% increases while my younger (lower-paid) workers are getting 5% raises,” my first reaction would be, “Why have you been avoiding an adult-to-adult conversation with your older workers?”
Dissension over salary compression is a management problem, not a money problem. Managers need to think of individual compensation as an ongoing dialogue. It starts in the recruiting process and is revisited each year at salary review time. Successful managers talk candidly to their people about pay expectations. They describe salary compression. They do simple math; for example, explaining to an $80,000-a-year veteran that when he gets a 2% raise, that’s $1,600, whereas if a young $30,000 worker gets a 4% raise, that’s $1,200, significantly less in terms of hard dollars.
Anger about salary compression isn’t about logic. It’s about emotion, something managers need to be very effective at handling.