1. What is Salary Compression?

Salary compression occurs when new hires are paid at rates similar to or higher than experienced employees, creating pay inequities within an organization. This calculator helps quantify the compression percentage between new and existing salaries.

2. How Does the Calculator Work?

The calculator uses the salary compression formula:

Where:

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

Explanation: A positive result indicates new hires are paid more than existing employees, while a negative result shows existing employees earn more than new hires.

3. Importance of Salary Compression Analysis

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

4. Using the Calculator

Tips: Enter both salary amounts in US dollars. Ensure accurate figures for meaningful results. Both values must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is considered problematic salary compression?
A: Typically, compression above 5-10% may warrant attention, though this varies by industry and company policies.

Q2: How can organizations address salary compression?
A: Strategies include regular salary reviews, market adjustments, structured pay bands, and transparent compensation policies.

Q3: Does negative compression indicate a problem?
A: Negative compression (existing salaries higher than new hires) is generally favorable but may indicate difficulty attracting new talent if market rates have increased.

Q4: How often should compression analysis be conducted?
A: Annually or whenever significant market salary changes occur or during periods of rapid hiring.

Q5: Are there industry standards for acceptable compression levels?
A: Standards vary by industry, but most organizations aim to keep compression below 10% to maintain internal equity.