Pay Compression Study
Pay compression is a common problem in the compensation systems of many organizations. Pay compression occurs when the value of each year of experience is lower for longer tenured employees than for newer employees. DCI can conduct a study of your organization's compensation system to determine if pay compression is occurring and if it is, make recommendations for how this compression can be reduced.
Scope of Work
The first step in the project is to determine which employees should be compared with one another. Ideally, this comparison would be at the grade-title level, but there are often too few employees in each grade-title to conduct a statistical analysis. In such cases, DCI will work with the client to create broader comparisons of similarly situated employees.
Once the comparison groups have been determined, the next step is to determine which of two options is the most appropriate analysis for the organization (at times, both analysis options will be utilized). This determination is often based on the availability of market data.
If reliable market data are available, DCI will compare compa-ratios (employee salary divided by market 50th) of employees at several levels of time-in-job or time-in-company. The differences in average compa-ratios at each of these levels will be analyzed to determine if longer-tenured employees are paid lower in the market than less-tenured employees.
If sufficient market data is not available, DCI will test for pay compression by investigating how the average annual pay for higher-tenured employees compares to the average annual pay for newer employees.
Post Study Analyses
DCI will report the findings from the compression study in an executive summary that will be presented to your organization under attorney-client privilege.