What might a company do to address pay compression?

Addressing pay compression often involves adjusting compensation structures to ensure that employees are fairly compensated in relation to their peers, especially those with varying levels of experience and performance. Introducing wage increases based on performance is a proactive strategy that aligns compensation with individual contributions and achievements. This approach not only rewards high performers, effectively differentiating their pay from that of less experienced or lower-performing employees, but it also can serve as a motivational tool, encouraging all employees to excel in their roles.

Additionally, by implementing performance-based increases, a company can help mitigate the effects of pay compression, as it creates a clearer connection between pay and individual merit or contributions. This encourages a culture of performance and helps ensure that employees feel that their efforts are recognized and appropriately rewarded.

On the other hand, simply increasing salaries across the board does not effectively address the nuances of pay compression, nor does eliminating job classifications or reducing employee hours. These alternatives may create additional issues related to equitable pay practices and workforce morale. Therefore, a performance-based wage increase is a thoughtful and strategic method for resolving pay compression.