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How Employee Wage Compression Impacts a Company

Wage compression is a significant factor in recruitment and retention across today’s workforce.

How Employee Wage Compression Impacts a Company

20th August 2024

Woman or Accountant do math and analyze with calculator and paperwork on desk

By Cheryl L. Mason, J.D.

Wage compression is a significant factor in recruitment and retention across today’s workforce. Several organizations, especially the federal government, think that an across-the-board basic salary is fair and presents less risk. This thinking is outdated and can drive disgruntlement within the organization. The reason is that paying the same people the same salary does not acknowledge their experience or their value.

For example, some federal agencies start their new employees at a general schedule (GS) pay rate of a 7 and in most cases, this is based on a college degree or specific certification. An intern at the same agency will only receive a GS pay rate of 5; however, once the intern graduates or completes certification, then they will receive the pay rate of GS 7.  But wait? The intern most likely spent several months at the agency, often doing the same work as the GS 7 employee. Thus, they are likely more experienced than the new GS 7 who has no experience at the agency. And this causes dissatisfaction among the employees. While employees’ salaries are not shared with other employees, people talk and compare. 

For instance, when I was first hired into the federal government, I was offered a GS 9 rating. I asked for an increase, but I was told that my internship time at another federal agency did not count toward the one-year employment requirement for GS 11. Several other employees, all men, began at the same time, and I later learned that at least one of them had a similar employment background to mine, but he was hired as a GS 11. It was subsequently discovered that most women were hired at the lower GS rate. This delayed promotions for women. There was resentment and frustration. Changes followed.

Fast forward 25 years, and the same agency restructured their hiring process with the mandate that all new employees would be hired at the same GS level, regardless of experience. This did not work, why? Recruitment dropped, so negotiations began around which GS rating to apply. This happens at almost every government agency. In many cases, the agency is following a process set by Human Resources, and agency leaders believe they must follow this process. Newsflash – you do not!  Leaders, hiring managers, have the capacity to increase the pay, either through pay steps within the GS rating or by GS rating, depending on the experience and background of the employee. In fact, you should do this if you want to expand your recruitment and show that you value your employees.

Employees compare salaries, because they want to know they are valued at least the same as their colleagues. In many companies and organizations, salaries differ based on experience and background. Sometimes, companies use perks or bonuses to get around wage compression issues, and these might work for a while. As employees move up the compensation ladder, they run smack into again.
What employees often discover is that wage compression is a sign of a larger issue within the organization – how employees are viewed and treated.  Wage compression conveys that employees are merely the means to the end – results and outcomes.

Employees are the most important resource of every organization. Valuing them means negotiating what they are worth to you.

Categories: Advice, Articles

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