Pay transparency laws — which require employers to disclose salary ranges — have several benefits, including pay equity and more successful negotiations during the hiring process.
But it can lead to more dissatisfaction and quitting as employees “detect inequalities” among themselves, according to people analytics firm Visier.
Wage squeeze can happen when wages for long-serving employees don’t keep pace with the market, he explained — while new hires are paid at the market rate.
Andrea Derler, director of research and value at Visier, told CNBC Make It that while wage compression is not new, it will become more widely known as open conversations about wages become more common. .
“Wage compression has always been a reality, but sometimes hidden from the employee because they were unaware of the salaries of their peers – pay transparency is changing that,” she said. added.
Visier’s “New Facts about pay” report found that failure to quickly identify and address the effects of wage compression on a team can lead to “more and faster quits”.
Its findings were drawn from its database of more than 18 million employee records in 75 countries.
According to a November 2022 survey by ResumeBuilder.com, approximately 1 in 20 workers in the United States will quit if they discover that they earn less than their colleagues.
To address this issue, companies need to implement “salary adjustments,” which are different from annual salary changes — and are usually larger, company-wide efforts, Derler said.
“Percentage increases in employee salaries are determined by taking into account various factors, for example, whether or not the company has met its annual financial objectives, but also individual or team performance of employees,” Derler said. .
Wage adjustments, however, are aimed at individuals at the local team level to account for “worker exit risk”, she added.
Visier found that employees whose salaries were not adjusted for the highest-paid new team members within six months quit 1.8 times earlier than those who received adjustments within the first month.
Additionally, employees who had not received an adjustment in 12 months quit 2.3 times earlier, Visier said.
“[This] suggests that it is important to reassure employees that despite the new entrant, they are still valued in the company,” Derler said.
“Any form of recognition, growth opportunity, or appreciation can have similar effects, but…adjusting payments is an effective way to retain existing team members after hiring a new higher paid team member.”
A multitude of factors can cause differences in pay: skills, education, experience, previous salary and negotiation skills, Visier said.
Still, it’s still important for companies to consider an adjustment for employees who have been with the company longer, he added.
“We’ve all been through this: when a new team member comes into a team, it affects existing team members, simply because work and responsibilities are redistributed, and training and onboarding are partly supported by those who have been in their position longer.” said Derler.
Even if a new entrant is older and therefore better paid, it can cause current employees to question their own position and salary, she added.
“[This] could also have dashed existing hopes of promotion for team members who had been in the job longer – leading to questions such as ‘They come in at a higher level than me, why didn’t I been promoted instead?” “
That’s why quit rates are higher among employees whose salaries stayed the same for a long time after new, highly paid team members joined the team, Derler said.
“[New employees] still lack the internal experience in the role, as well as the overall institutional knowledge that others have. Their entry at a higher level or salary…always brings a potentially threatening and competitive element.”
When you find out the pay difference between you and your peers, you may be “disappointed,” which is understandable, Derler said.
“But try not to assume malice on the part of your employers. It could be a simple oversight or a lack of information your organization has about you and your peers’ salary differences. ”
Derler has three tips for those who decide to ask their employer for a salary adjustment:
1. Compare your salary externally
Educate yourself on the value of hard work in your role both in your company and in other similar organizations. Gather external information on the market value of your role and required experience through platforms such as Glassdoor and LinkedIn.
2. Prove your value to the company
List how your work over the past year has added value to the success of your organization, your team and your manager. Instead of listing what you did, show how what you did made a positive difference.
3. Initiate a friendly negotiation with your employer
Based on the information you gathered in the previous steps, come up with a percentage increase range that you think you’ll be happy with. State it clearly and firmly and back it up with your list of accomplishments.