Today, we are learning two terms commonly used in compensation design so we can all sound a little more HR-smart.
Salary Compression occurs when the pay gap between junior and senior employees narrows over time.
Imagine a normal pay structure as a gentle upward slope. Junior roles start lower, senior roles sit higher.
Compression happens when that slope flattens, where the distance between junior and senior pay gets squeezed closer together.
This can happen when juniors move up faster than seniors due to market pressure, while seniors stagnate due to capped or inconsistent increments.
Tbh, salary compressions are uncomfortable, but still manageable.
Next…
Salary Inversion occurs when junior employees earn more than their senior counterparts, sometimes even more than those who trained them.
“Inversion” literally means upside down. In this case, the expected pay order is reversed.
This is typically caused by reactive hiring in hot labour markets and a weak linkage between pay progression, tenure, and contribution.
Salary inversion is more concerning for it creates a trust and equity problem. It often triggers senior resentment and declining engagement.
Compensation decisions send signals to the rest of the organisation. From my experience, addressing salary compression early, before it turns into inversion, is always cheaper than fixing the problem later.
But how?
To be continued…
