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What is Pay Compression and How HR Should Address It

What is Pay Compression and How HR Should Address It



Undoubtedly, 2021 was a year full of changes for the workforce--from employees resigning in record numbers to many employers remaining remote for the foreseeable future. The result? Companies competing more for talent and talent expecting more from companies.

 

What Should Employers Expect?

According to the Conference Board, employers are anticipating the largest one-year projection hikes for base salaries since 2008. Organizations should expect to see base pay rates—which do not include bonuses or one-time pay outs— go up an average of 3.9%. In fact, this percentage prediction has grown over the course of 2021, from an original prediction of a 3% increase. Employers are using higher wages to attract top talent thanks to inflation and labor shortage.


The good news? We have a few tips on how to adjust compensation in BerniePortal and talk to employees about raises.

 

What is Pay Compression and How Does it Happen?

 

Pay compression is a compensation issue where there is little to no difference in pay among employees despite contributing factors such as years of experience and skill levels. An example of this would be a less experienced new hire being paid close to or more than a seasoned employee in a similar position, due to salary expectations increasing. This may lead to veteran employees feeling undervalued. 

You may be thinking, “how is it even possible to avoid a pay compression in an increasingly competitive job market?”  While you may not be able to avoid it completely, it is always wise to review your company’s compensation policy and update it when necessary. Hiring tends to ramp up in a new year, and it’s never too early to get prepared now.

 

How Can BerniePortal Help?

 

The best way to prevent an HR issue from arising is preparing for it before it begins by being transparent with employees. BerniePortal is here to help with that. With base pay rates predicted to increase, pay compression will be on the rise right behind it. Here are some tips on how to use BerniePortal to help you stay prepared.

Applicant Tracking 

It’s always exciting to kick off the new year by filling open positions on your team. While you are in the processing of searching for that unicorn candidate, it’s a perfect time to revisit current employee compensation to avoid pay compression. Once you have decided on a base salary for the new position that fits into your budget, be sure to clearly outline this in the job posting. 

 

Though it’s not legally required to disclose compensation in the job posting, being transparent about pay can set clear expectations upfront. It’s also a good opportunity to include if your organization offers any variable compensation or bonuses, as that helps potential candidates decide if it’s a good fit right off the bat.

 

Compliance

Going into the new year, your leadership team may want to revisit their compensation policies and update them. Therefore, it’s important to make sure they are easily accessible for employees. BerniePortal allows leadership teams to upload new compliance notices that employees are required to view and sign.

 

Being on top of compliance can help HR teams avoid major issues down the road and eliminate an abundance of employee questions around company policies.

 

Performance Management

When compensation conversations arise with current employees, past performance is an important factor to weigh into your decision making. BerniePortal’s Performance Management feature makes it easy to refer back to saved 1:1 conversations you have had with individual employees and document any past note-worthy performance.

The new year is a good time to gauge employee satisfaction with eNPS and BerniePortal’s survey feature is an efficient way to do so. You can send out a survey to all your employees in just a manner of minutes.



These surveys can be an extremely helpful way to find cracks in the foundation, and follow up with employees that are unhappy. In the midst of the great resignation, it’s important to keep a pulse on company satisfaction to avoid preventable turnover.

 

Looking Ahead

With constant change carrying over from last year, and more change to come, it can often feel confusing and discouraging. BerniePortal is here to help you streamline HR and allow you more time to care for employees, old and new.

 

Additional Resources

You can stay informed, educated, and up-to-date with important HR topics using BerniePortal’s comprehensive resources:

  • BerniePortal Blog—a one-stop-shop for HR industry news
  • HR Glossary—featuring the most common HR terms, acronyms, and compliance
  • HR Guides—essential pillars, covering an extensive list of comprehensive HR topics
  • BernieU—free online HR courses, approved for SHRM and HRCI recertification credit
  • HR Party of One—our popular YouTube series and podcast, covering emerging HR trends and enduring HR topics


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