THE MANDATE is out, top-notch talent is at a premium! In a tight labour market, attracting qualified and skilled candidates is tough indeed. The subsequent war for talent has led to an unprecedented rise in starting salaries, as companies are willing to pay the best in their bid to entice the pick of the bunch.
Unfortunately, in this process, existing employees get a raw deal, as their pay rises just cannot keep up with the rising entry-level offers. Paul Morris, President of the personnel-consulting firm, The Paul Morris Group, says, `Internally, employers increase salaries by 4-7% whereas in the market there is a 10-15% increase'. This narrowing of pay differentials across the board is known as `Salary Compression'. In fact, at times the competition in the hiring market may force companies to fix a new incumbent's salary higher than that of senior employees in the company!
The management may try its best to keep the exorbitant offers under wraps by camouflaging them as signing bonus or contract hire. But, word gets out soon enough and the organisational hierarchy and ranks go for a toss. A feeling of inequity and discontent reigns in the workplace as experienced employees find themselves rubbing shoulders with new incumbents.
The older employees begin to ask themselves,, `What do I have to show for my skills and experience?' The ensuing frustration and resentment leads to poor morale and gradual decline in productivity. Employees will start looking for another job in an attempt to bring their salaries in line with current market equity and get their full value.
The HR department has to take action before these attrition tendencies affect the company.
Companies can identify any salary compression by examining discrepancies within pay structures. They should calculate the pay differentials by comparing years of experience and performance level vis-à-vis the salary range. Jarring differences between new and old personnel or good and poor performers spells trouble ahead!
The solution would be to raise current salaries across the board to keep them ahead of entry-level hires. But, the catch is that it will leave the company in danger of bankruptcy! Instead, companies should adopt sound remuneration structures by restructuring their pay policies. They can adopt methods like:
Unfortunately, in this process, existing employees get a raw deal, as their pay rises just cannot keep up with the rising entry-level offers. Paul Morris, President of the personnel-consulting firm, The Paul Morris Group, says, `Internally, employers increase salaries by 4-7% whereas in the market there is a 10-15% increase'. This narrowing of pay differentials across the board is known as `Salary Compression'. In fact, at times the competition in the hiring market may force companies to fix a new incumbent's salary higher than that of senior employees in the company!
The management may try its best to keep the exorbitant offers under wraps by camouflaging them as signing bonus or contract hire. But, word gets out soon enough and the organisational hierarchy and ranks go for a toss. A feeling of inequity and discontent reigns in the workplace as experienced employees find themselves rubbing shoulders with new incumbents.
The older employees begin to ask themselves,, `What do I have to show for my skills and experience?' The ensuing frustration and resentment leads to poor morale and gradual decline in productivity. Employees will start looking for another job in an attempt to bring their salaries in line with current market equity and get their full value.
The HR department has to take action before these attrition tendencies affect the company.
Companies can identify any salary compression by examining discrepancies within pay structures. They should calculate the pay differentials by comparing years of experience and performance level vis-à-vis the salary range. Jarring differences between new and old personnel or good and poor performers spells trouble ahead!
The solution would be to raise current salaries across the board to keep them ahead of entry-level hires. But, the catch is that it will leave the company in danger of bankruptcy! Instead, companies should adopt sound remuneration structures by restructuring their pay policies. They can adopt methods like:
- HR managers should categorise jobs based on the contribution each job makes to the organisation's goals and divide employees into ranks. A specified increment or promotion matching every level will maintain the distinctions.
- For a well-managed salary-administration policy, managers should put in place methods to measure performance, responsibilities, achievements and initiative. The key is to tie pay rises with performance to create a level-playing field.
- Broad banding is a new method of structuring salaries, which reduces the number of pay levels, allowing the employer more flexibility. The levels have much broader job descriptions and wage levels facilitating easier salary adjustments.
- Craig Rowley, Vice President and practice leader of the Hay Group consulting firm in Dallas, says, `Every time an organisation is deciding on a new hire's salary, HR managers should look at how it lines up with what they are currently paying'.
- Sometimes, offering a lumpsum bonus can also do the trick.
- The management can set aside a portion of the budget for salary adjustment. This fund can be used to alleviate salary compression by identifying and rewarding those most in need of a raise.
- Organisations can also seek outside help from compensation consulting firms to have the best practices in the compensation programme.
- Companies can relate employee experience, tenure, value and loyalty with quality of work-life techniques and progressive benefits. Incentives like stock options, paid sabbaticals, company cars, club memberships, laptops, etc. are both cost-effective and also keep employees content and productive. Special privileges like a professional development account and training opportunities to long-serving staff will give them an edge over new recruits.
All said and done, fighting salary compression is an ongoing battle with no one-time solution.
PAYAL CHANANIA
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