Pay Structure
Pay compression
Also called: salary compression, compression
When new hires earn similar pay to (or more than) tenured employees in the same role.
Pay compression happens when an organization's salary ranges fall behind the market. Hiring managers offer market-rate pay to fill open requisitions, while existing employees stay on outdated structures. The result: a new hire and a five-year tenured peer earn nearly the same — or worse, the new hire earns more.
Compression is one of the most common drivers of regrettable turnover. Tenured employees notice when their pay no longer reflects their experience, and they leave for competitors who'll pay them market.
Fixing compression typically requires a mid-cycle adjustment across affected employees, which usually costs far more than the salary survey that would have kept ranges accurate. This is why survey freshness matters — annual data refreshes are the standard, not biennial.
Example
A team of 50 senior accountants haven't gotten a structure adjustment in 18 months. The market moved 6% in that time. New senior accountants are now hired at the same pay or higher than tenured peers. Fixing this requires a 4–6% catch-up adjustment across all 50 employees.