1. What Is Wage Compression?

Wage compression occurs when the pay of new hires approaches or exceeds that of existing employees in similar roles, often causing dissatisfaction among long-term staff and potential retention issues.

2. How Does The Calculator Work?

The calculator uses the wage compression formula:

Where:

• New Hire Salary — Salary offered to new employees ($)
• Existing Salary — Current salary of existing employees in similar roles ($)

Explanation: This formula calculates the percentage difference between new hire salaries and existing employee salaries, helping organizations identify potential pay equity issues.

3. Importance Of Wage Compression Calculation

Details: Monitoring wage compression is essential for maintaining employee morale, ensuring pay equity, and developing effective compensation strategies that balance market rates with internal equity.

4. Using The Calculator

Tips: Enter both salary amounts in dollars. Positive results indicate new hires are paid more, while negative results show existing employees earn more. All values must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is considered problematic wage compression?
A: Typically, compression above 5-10% can cause issues, though this varies by industry and company culture.

Q2: How can companies address wage compression?
A: Through regular salary reviews, adjusting existing employee compensation, and implementing structured pay bands.

Q3: Does wage compression affect all industries equally?
A: No, it's more common in industries with rapidly rising starting wages or specialized skill shortages.

Q4: Can wage compression be positive?
A: While typically viewed negatively, it can indicate a company is adapting to market rates, though it should be managed carefully.

Q5: How often should companies check for wage compression?
A: Annually during compensation reviews, or when making significant numbers of new hires.