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Are you a victim of salary compression?

During the last recession, employees worried more about unemployment than equitable compensation. The reverse is true today. Salaries are now so fluid that a salary range is really a target, not a box. Here's an example. A hospital which hired 2004 nursing graduates for $41,000 plus a $3,000 sign-on bonus is offering $46,000 with a $5,000 sign-on bonus to 2005 graduates. How does the class of '04 feel about this? Since they are now, even with a raise, earning $3,000 less than the neophyte class, need you ask?

In compensation circles, this condition is known as salary compression. The shortage of labor means more dollars are chasing fewer candidates. Organizations are continually forced to raise offers because their competitors are doing so. As a result, the range being offered for a particular job is compressed or flattened to one number. The result? We've met five-year employees of a bank who sit next to people hired last month who earn 20 percent to 30 percent more. Virtually every other industry (not just high tech as most people believe) is also having salary compression troubles.

For new hires, nirvana will last one year or until their salaries are topped by even newer hires. The potential for widespread dissatisfaction then, followed by defection of the best workers, is great.

Let's follow a worker hired last June. He was hired by a hospital as a middle manager for $62,000. In September he was given a $5,000 increase because another middle manager was hired at $68,000. (Note the discrepancy. The hospital gambled it could get away with a $5,000 increase rather than $6,000.) In January, a third manager was hired at $72,000. Now both the 2005 hires await salary adjustments while perusing the want ads. They will probably get the money since the hospital's only option is to pay even more money to replace them and only if they yell loud enough. If the hospital isn't quick, however, the managers will be out the door.

Where will this stop? Not until the demand for workers drops sharply. What about all the people who faithfully worked through five years of salary freezes and have no idea the person next to them in report, with less experience and who does the same job makes 20 percent to 40 percent more money? The organization certainly won't pass out clues. As HR is frantically trying to staff, sometimes at any price, will they tell loyal, hard-working employees they're being ripped off? Not likely.


In low-turnover departments employees have no idea what newly hired counterparts at other organizations are earning unless they're job hunting or have a good friend who shares salary information. Even if they find out they are falling behind, they won't want to confront the boss. They may assume or hope the friend is exaggerating. That's rarely the case.

After the initial shock of learning how dramatically underpaid they are, many employees will rationalize by congratulating themselves on the wonderful benefits package they enjoy, the short commute, the supportive boss, the great food in the cafeteria, etc. That honeymoon lasts about a month. Unfortunately, being underpaid is like having a rock in your shoe. Nothing takes the pain away except removing the cause. In two months, productivity begins to suffer. In six months he/she becomes a reluctant job hunter or, worse, allows resentment to fester until he/she blows up at the boss or co-workers over nothing. Some workers burn silently and reduce effort to match the salary shortfall. This is a career-endangering strategy but not uncommon.

Younger workers usually confront immediately, demanding parity. A generational characteristic of the twenty-somethings (the parents of many were laid off at least once between 1990 and 2000) is their unwillingness to listen to explanations from the boss. The more marketable the person, the shorter the attention span. If refused parity, they either resign on the spot or find a new job and then resign.

Older workers nurse their resentments and wonder whether they should fight for more money. Instead of saying, as younger workers do, "It's payback time, I want my share", they equivocate, encouraging organizations to believe they can get through this period without putting every available dollar into salary expense. Older workers consider loyalty an emotional gift so the salary issue feels like a slap in the face. if the company played fair, they reason, it would adjust salaries without having to be blackmailed or bludgeoned. This rarely happens so worker cynicism and defection rise.

Where does this leave the somewhat bewildered, fact-starved employee who wants fair compensation? He/she is informationally challenged and better wake up. Falling financially behind creates two potentially devastating problems: Pension contributions, become lower than need be. Equally important, the individual's marketability is compromised. While many things have changed in the boom healthcare market, one has not: Employers don't believe anyone worth hiring will accept underpayment. Instead, employers conclude they are underskilled. Employers are congenitally unable to believe "bargain" employees exist. Bargains are not even allowed to present their cases. They are screened out quickly with the question, What are you making now?

These are facts that those who know they're underpaid and those who merely suspect it, must confront. Here's a game plan you may wish to follow.

GET THE FACTS FROM COMPETITORS--Start with salary sites on the Internet. Your HR department will never reveal the dollar amount of the last offer made to someone with your skills. Asking the new hire what he/she was offered is tactless and dicey. You may get no answer or the wrong answer. Since so many organizations are hiring, you might get numbers from competitors if you present yourself as a candidate. You can network for the information through your professional association. You must have it.

CHECK COMPANY POLICY - If you find you are 20 percent or more below market, talk to your company. Do they make market-led adjustments? Many companies will, if employees whom they need, press hard enough.

TALK TO YOUR BOSS - Present your case. Will he/she go to HR or upper management on your behalf? Many clients report that although their bosses would not, they were begged not to leave! Make no threats or commitments.

CONSIDER YOUR OPTIONS - If you're 35 percent behind, you probably need to consider a quick move. If it's 15 percent, you have more time. However, time is relative because the market continues to surge ahead. When is the best time to make a move? Can you leave immediately or do you have projects pending?

Even if the company gives you a raise (they may offer to split the difference between market and your salary) will you be satisfied? Our experience is that people become more resentful when they get what they asked for because they can't let go of the idea the company should have volunteered the money!

Even if you can't or won't change jobs now, keep track of salary trends. We've seen people forced to move twice in 18 months to restore themselves to market. Don't wait until you're that far behind.

by Marilyn Moats Kennedy MSJ
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Title Annotation:MANAGEMENT
Author:Kennedy, Marilyn Moats
Publication:FOCUS: Journal for Respiratory Care & Sleep Medicine
Date:Jan 1, 2012
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