Staffing Kansas City

The Reality of “Wage Compression” in the Hiring Process

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Drive down any street in town and you’ll see the signs for “Hiring Now” and “Join Our Team with a Sign-on Bonus.” With record numbers of employees quitting, companies are looking to attract new job candidates while retaining current staff.

It is a scenario known as “wage compression”. This occurs when pay for new hires or entry-level jobs is like what longtime employees make. The logistics of wage compression present businesses with an ongoing financial and management challenge. As a result, this continuing quandary remains front-and-center for companies such as Walmart, Target, Chipotle and Sodexo, to name just a few, that are looking to increase the pay floor for entry-level employees.

As companies across a range of industries rethink hiring and retention, they are often forced to take another look at the wages of longtime staffers and managers. By proxy, such actions trigger an internal reassessment of the value of expertise, skills and seniority of current employees within the organization. In short, everyone wants to know how they stack up against the competition.

While such initiatives are increasingly important for attracting new candidates, these incentives often do not consider current employees. In a classic us-versus-them scenario, current employees often consider going somewhere else to reap the benefits of being a new employee.

In the meantime, companies who need to hire now will continue to raise the bar for new hires, paying higher wages, providing benefits of free food and, in the case of Walmart, even offering free college to bring in new employees. Yet as businesses well know, there’s only so much money available to remain in business.