Pay compression

How compression happens

The mechanics are mundane: market rates for new hires rise faster than annual increase budgets move incumbents, so each year's joiners land closer to (or above) the people who trained them. Minimum wage and award floors rising faster than differentials compresses the bottom of structures the same way. And manager-report compression arrives when in-demand specialist pay outruns management bands, which is only a problem if the organisation insists managing is the only way up.

Why it costs more than it looks

Compression is invisible until people compare notes, and transparency (legal and cultural) means they increasingly do. The discovery sequence is reliable: a tenured performer learns a new hire matched their pay, reads it as the organisation valuing loyalty at zero, and either leaves (rehiring at the new market rate, completing the irony) or stays disengaged. The remediation budget after discovery always exceeds the prevention budget before it.

Managing it deliberately

Track it: compa-ratio by tenure cohort and new-hire-versus-incumbent comparisons make compression visible on a page. Prevent it: bring bands up with the market annually rather than only at hiring, and reserve budget for targeted internal corrections in hot families, not just external offers. And where specialist pay legitimately overlaps management bands, say so as design (dual career tracks) rather than letting it read as accident.