What does a pay compression issue indicate?

A pay compression issue signifies that there is little difference in compensation among employees regardless of their experience levels. This situation often arises when new employees are hired at salaries similar to or even higher than those of existing employees who have more experience or are in the same role for a longer duration. It typically indicates a misalignment in pay structure, where the value or worth of experience, tenure, or skill level is not being adequately reflected in employee compensation.

This can lead to dissatisfaction among existing employees, particularly those who feel their experience and contributions are undervalued relative to newer colleagues. Organizations need to regularly review their compensation strategies to ensure that pay scales appropriately reflect the experience and value of their employees to maintain motivation and retention.