1. What is Salary Compression?

Salary compression occurs when new hires are brought in at salaries that are very close to or even higher than those of existing employees with similar roles and experience. This calculator helps quantify wage compression percentage.

2. How Does the Calculator Work?

The calculator uses the salary 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 and existing salaries, helping identify potential wage compression issues.

3. Importance of Salary Compression Analysis

Details: Monitoring salary compression is crucial for maintaining pay equity, employee satisfaction, and retention. Significant compression can lead to morale issues and increased turnover among experienced staff.

4. Using the Calculator

Tips: Enter both salaries in US dollars. Positive results indicate new hires are paid more, negative results indicate new hires are paid less than existing employees.

5. Frequently Asked Questions (FAQ)

Q1: What is considered problematic salary compression?
A: Typically, compression above 5-10% may indicate issues, though this varies by industry and role. Regular monitoring helps identify trends.

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

Q3: Does salary compression affect all industries equally?
A: No, it's more common in industries with rapidly rising starting wages or specialized skill shortages.

Q4: Should benefits be considered in compression analysis?
A: While this calculator focuses on base salary, comprehensive analysis should consider total compensation including benefits and bonuses.

Q5: How often should companies check for salary compression?
A: Annual reviews are recommended, with more frequent checks during periods of rapid hiring or market wage changes.