Most people have never heard of wage compression – also sometimes referred to as salary or pay compression. However, it exists throughout many industries. Often, as we’ll explain, it’s the result of employers or their human resources teams not making a regular review of what people at all levels of the organization are being paid.
Basically, wage compression is when there are not adequate differences between what new and long-term employees are paid or what senior-level employees and the more junior employees who report to them are paid.
Obviously, when employees learn about this – as they often do – it can be bad for morale. It can result in valuable employees leaving for employers who will show their appreciation for their experience, knowledge and skills by paying them what they’re worth (or at least closer to it).
What causes wage compression?
Wage compression can occur when starting salaries in a field or in a geographic area increase. When that happens, new hires may be brought in at a wage close to or even higher than that being earned by people who have been with the company for some time and in more senior positions – maybe even their boss.
Changes to the minimum wage can also contribute to wage compression. If the state changes its minimum wage, businesses may have to increase some of their hourly workers’ pay if they’re being paid less than the new minimum. If they don’t increase more senior hourly workers’ pay as well (and typically they don’t), you’re going to get wage compression.
Is wage compression illegal?
If wage compression is purely due to a business’s failure to keep an eye on their payroll data, it’s not in and of itself illegal. However, if the more senior or longer-term employees earning little more (or even less) than newer, more junior ones are predominantly in one or more protected classes, then a case could potentially be made for discrimination.
Remember that your employer cannot forbid you and other employees from discussing and comparing your own wages. If you believe that your employer may be acting illegally, contact the Wisconsin employment law attorneys of Alan C. Olson for immediate assistance at (262) 785-9606.
