About Us Contact Us Privacy Policy Terms of Use DMCA Opt-out of personalized ads
© Copyright 2023 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.

Are You Being Paid Less Than Your Co-Worker? Here's What To Do About Wage Compression

Wage Compression can happen when long-term employees fail to keep up with the newer market rates while the company hires new employees with a better up-to-date rate.
UPDATED JAN 22, 2024
Cover Image Source: Pexels |
Cover Image Source: Pexels |

It can be a terrible feeling knowing that you are paid less than your colleague who does the same amount of work as you. Many US states are looking at the pay transparency law as the solution that mandates the employer to disclose their salary ranges. This law also has several pay benefits including pay equity and more successful negotiations during the hiring process.

However, Visier reports that this law has led to dissatisfaction and resignations, as the wage compression is brought to notice. 

What Is Wage Compression?

Pexels | Anna Shvets
Pexels | Anna Shvets

Wage compression can happen when long-term employees fail to keep up with the newer market rates while the company hires new employees with a better up-to-date rate.

Andrea Derler, Visier’s principal of research and value, told CNBC that wage compression has been here for a while, but it's only getting widely known now, when open salary conversations are being encouraged. 

"Wage compression was always a reality, but sometimes hidden from the employee because they lacked awareness of their peer’s salaries — pay transparency is changing this," she said. 

How To Stop The Resignations?

Pexels | Andrea Piacquadio
Pexels | Andrea Piacquadio

Visier's "New facts about pay" report concluded that the failure to identify and find a solution to wage compression is leading to "more and faster resignations."

According to another survey from ResumeBuilder, it was found that 1 out of 20 workers in the US will quit if they find out that they were making less than their co-workers. 

Andres said that to address this there should be more "pay adjustments" which vary from yearly salary changes and are usually larger, company-wide efforts, said Derler. 

"Percentage increases for employees’ salaries are determined by considering a variety of inputs, for example, whether or not the company achieved its annual financial targets but also employees’ individual or team performance," said Derler.

The pay adjustments, however, are aimed at individuals at the local team level to account for "workers’ risk of exit," she added.

According to Visier, the employees whose salaries weren't adjusted to account for the newest highly-paid team members in six months were quick to resign. 

In addition, Visier also said that it became even more likely for the employees to leave if their pay is not adjusted in the next 12 months. 

″[This] suggests that it is important to reassure employees that despite the new entrant, they are still valued at the company," Derler said. 

"Any form of recognition, or growth opportunity or appreciation may have similar effects, but ... payment adjustment is an effective way to retain existing team members after the event of hiring a higher-paid team member."

Countering The Problems

A number of things affect the salary -- skills, experience, qualification, previous salary, and of course how one negotiates. Having said that, it's importrant for the companies to adjust the salaries of their long-term employees, who not only have been serving the company for longer but also choose to stay with it. 

"[New employees] still lack the internal experience in-role, as well as the overall institutional knowledge the others have. Their entry at a higher level or salary … still brings in a potentially threatening and competitive element."

Andrea furthur highlights key problems like in case of a new team member entering a team, and affecting existing team members, simply because work and responsibilities are reshuffled.

Here are certain steps you as an employee can take today.

Pexels | Christina Morillo
Pexels | Christina Morillo

1. Benchmarking Your Salary Outside Of Your Company

Identify your work's worth. Stay updated on external market value and about your roles and the experience other companies are demanding on platforms like Glassdoor and LinkedIn.

2. Proving Your Value To Your Organization

Make a list of all the things that you do for the organization that helps them in growing the business. If you are in backend, evaluate the problems that you solve for the projects.

3. Don't Be Hesitant To Start A Friendly Negotiation

Once you have figured you own worth, this step shouldn't be hard to follow. State why you think you deserve the remuneration you are asking for, and support it with your past work. 

Having said that, the companies also have a huge role to play when it comes to solving problems like wage compression.