What is a common result of pay compression in an organization?

Pay compression occurs when there is a minor difference in pay between employees regardless of their experience, skills, or job tenure. This typically happens when new hires are compensated similarly to seasoned employees, particularly when market wages rise but existing employees' wages do not adjust accordingly.

In this context, increased turnover among new hires is a common result of pay compression. When new employees see that their compensation is not significantly higher than, or in some cases, comparable to that of their more experienced colleagues, it can lead to dissatisfaction. New hires may feel undervalued despite bringing fresh skills and talents to the organization. If they perceive that their pay does not reflect their contributions or the market rate for their skills, they are more likely to seek employment elsewhere, leading to increased turnover.

This phenomenon can disrupt team dynamics and affect overall productivity, as ongoing hiring costs and the time needed for new hires to ramp up can place a strain on organizational resources. Thus, recognizing the importance of fair compensation structures is essential for maintaining a stable and committed workforce.