What does "salary compression" refer to in the context of human resources?

Salary compression refers to a situation where new employees are hired at a similar pay rate to existing employees, even though the existing employees may have significantly more experience or tenure within the organization. This can happen when the market salary increases for a particular role rise faster than the salary adjustments for current employees. As a result, the salary levels become compressed, leading to potential dissatisfaction among experienced workers who may feel undervalued despite their longer service and accumulated skills.

In this scenario, the issue arises when new hires command salaries close to those of their more seasoned counterparts, which can lead to morale issues, retention challenges, and inequity perceptions among staff. Understanding and addressing salary compression is crucial for human resource professionals to maintain a motivated workforce and ensure fair compensation practices.