WAGE COMPRESSION:
The Great Pay Squeeeeeeze
T
2016 Issue 1 |
THE
SCORE
26
he graphic to the right is just a
“good enough.” Accelerate raises for those
sampling of legislative initiatives to
outstanding employees so your money
SEATTLE, LOS ANGELES
raise the minimum wage level in different
goes to those who earned it the most.
$15/hour
regions of the country. President Obama
Consider freezing wages for employees
urged Congress in the 2015 State of
whose performance isn’t up to par.
the Union Address to raise the national
• Compare your current pay structure
OREGON
minimum wage from $7.25/hour to $10.10/
to your competition. Is there a discern$15/hour by July 2016
hour, and later increased his proposal to
able difference between pay grades? Are
$12/hour. The Economic Policy Institute, a
wages keeping in step with the external
Washington think tank, proposes $12/hour
marketplace? Pay attention to compensaSAN FRANCISCO
by 2020, saying that the current federal
tion surveys for your area and what your
$15/hour by 2018
minimum wage of $7.25 is worth 24
competition is paying for comparable jobs.
percent below its peak value in 1968. Their
• Analyze salaries of your current
proposal includes a provision that beginworkforce and make changes accordCHICAGO
ning in 2021, the minimum wage should
ingly. Look at the wages of managers
be indexed to increase automatically each
compared to those who report to them.
$13/hour by 2019
year based on growth in the median wage.
If an employee’s wages are 80-95 percent
Some owners in the restaurant and
of those of their manager, there’s a risk
hospitality industry are choosing to skip
of wage compression — and if wages of
the incremental wage increases altogether
a direct report exceed 95 percent of their
and are offering to pay current wages at expected future rates.
manager’s, wage compression already exists. Since restaurants
Determining how to combat the increased cost is likely to create
tend to have higher turnover, do this analysis at least a couple of
operational challenges.
times each year to stay ahead of the issue.
A big issue with an increasing minimum wage is the
• Consider perks and benefits for experienced staff.
problem of wage compression — the gap between wages for
Are there attractive benefits you could offer to longer-term
current staff compared to entry-level newbies. Your experienced
employees to help make up part of the pay differential?
staff may be paid at a rate that’s lower or only slightly higher
Once you’ve done your analysis, determine your pay policy.
than brand new employees. That leads your existing folks to
Do you want to raise everyone’s pay? Do you want to raise only
say, “That’s not fair!” Wage compression can lead to demoralthe lowest level of your pay scale and maintain the higher levels
ized current employees and at worst, skilled employees who
as is? Or look at each individual employee’s situation?
leave your organization because they can make a higher starting
The final step is to communicate changes to your
salary elsewhere.
employees, starting with your managers. Do this at least a
Your first step is to bring the wages of all of your employees
month ahead of the effective date for pay updates. Explain your
to the new minimum wage level. Then you’ll want to develop a
rationale for the new policy, along with your plan going forward.
pay policy that provides a competitive wage and manages wage
Get your managers on board so they can answer questions from
compression. Here are some ideas to use in developing that
the rest of your employees. Then have managers set meetings
policy:
with their employees to explain the new pay ranges. Consider
• Determine who you most want to benefit. Is a crew
providing a benefits statement to each individual including a
person as valuable to your organization as a shift manager?
written analysis of their own situation. Emphasize to employees
Consider having different wage structures for different levels in
that they are receiving a wage adjustment based on the contrithe organization. Depending on competitive issues, maybe the
bution they’re making to your organization.
pay range for your crew could be narrow and closer to minimum
You may be asking whether you can afford to make changes to
wage while positions that hold more responsibility get paid in a
your pay policies. The question is whether you can afford not to. S
higher range. Unless an employee takes on more responsibility,
higher pay