1. What is Pay Compression?

Pay compression occurs when new hires are paid salaries that are close to or higher than those of existing employees with similar roles and experience. This calculator helps quantify the wage compression percentage between new and existing salaries.

2. How Does the Calculator Work?

The calculator uses the pay compression formula:

Where:

• New Hire Salary — Salary offered to new employee ($)
• Existing Salary — Current salary of existing employee ($)

Explanation: The formula calculates the percentage difference between new hire salary and existing salary, indicating the level of wage compression in the organization.

3. Importance of Pay Compression Calculation

Details: Monitoring pay compression helps organizations maintain fair compensation practices, prevent employee dissatisfaction, and ensure salary structures remain competitive and equitable across tenure levels.

4. Using the Calculator

Tips: Enter both salary amounts in dollars. Positive results indicate new hires are paid more than existing employees, while negative results show existing employees are paid more.

5. Frequently Asked Questions (FAQ)

Q1: What is considered problematic pay compression?
A: Typically, compression above 5-10% may indicate issues, but this varies by industry and company policies.

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

Q3: Does pay compression affect employee retention?
A: Yes, significant pay compression can lead to decreased morale and increased turnover among experienced staff.

Q4: Are there legal considerations with pay compression?
A: While not illegal itself, pay compression can contribute to equal pay issues if it disproportionately affects protected classes.

Q5: How often should companies monitor pay compression?
A: Ideally during annual compensation reviews or whenever significant hiring occurs.