Pay Compression

 Pay Compression

Over time, workers who have been in a job may earn less than new hires in the same position, a phenomenon called wage or pay compression.

Pay compression can happen in competitive labor markets. Employers often need to increase pay to hire experienced or in-demand workers when the need for workers outstrips the supply of available talent. At the same time, raises for current staffers may not have kept up.

The disparity can also happen when companies use out-of-date data to set pay.

Alternatively, inconsistent or shifting salary range schemes might also be to blame. But, frankly speaking, companies pay more attractive compensation packages to bring in new employees because they offer alternative methods of working, have higher understanding of the competitive market, may know additional technologies and more. In short, companies value these employees because they can provide a data dump about competitors and new products.