WMBA 6401 Week 6 Pay Compression Analysis Example

Thirty Cents Between a New Hire and a Two-Year Assistant: Where a Library System's Employees Sit in Their Pay Ranges, the Compression and Inversion the Numbers Reveal and What to Fix Before the Next Review

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Walden University

WMBA 6401: Human Resource Analytics

Instructor Name

Month Day, Year

Thirty Cents Between a New Hire and a Two-Year Assistant: Where a Library System's Employees Sit in Their Pay Ranges, the Compression and Inversion the Numbers Reveal and What to Fix Before the Next Review

Why Position in Range Matters

Elk River County Library, a fictional fourteen-branch system, pays all staff on a county salary scale with a minimum and maximum for each job. Raises come mainly from annual steps of about 2.5 percent, but the county has twice raised hiring rates in the past three years to compete for workers, without adjusting the pay of people already employed. This analysis measures where employees sit inside their ranges, by job family and tenure, to see whether those hiring changes have distorted the structure.

The measure is range penetration: (hourly rate minus range minimum) divided by (range maximum minus range minimum). An employee at the minimum is at 0 percent, one at the maximum at 100 percent. Penetration should rise with tenure if the structure is working.

Library Assistants

Table 1

Library Assistant Range Penetration by Tenure

Assistant range: $19.20 to $26.40 an hour. Composite figures from the payroll system.

The assistant structure is compressed. An assistant with two years' experience earns on average thirty cents an hour more than one hired this year, a gap of about 1.5 percent, because new hires now start at a higher step while existing staff have moved up only one or two steps. Over three years, the structure works as intended. The compression falls on exactly the group the Week 3 turnover analysis found most at risk after the first year: assistants with one to three years, who now train new hires earning almost what they do.

Librarians

Table 2

Librarian Range Penetration by Tenure

Librarian range: $27.50 to $38.50 an hour. Composite figures.

The librarian structure shows inversion, not just compression. Librarians hired in the last two years earn on average fifty cents an hour more than those with three to six years, because the county placed recent hires above the starting step to win them in a tight market for credentialed librarians. A librarian with five years' experience may be paid less than the person she is mentoring.

Why It Matters

Adams (1965) proposed that people judge fairness by comparing the ratio of what they contribute to what they receive with the ratios of others, and that perceived inequity motivates them to restore balance, sometimes by reducing effort or leaving. Compression and inversion create exactly the comparison equity theory predicts people will make, and in a public system where the scale is published, every employee can make it. The Week 5 survey found pay fairness the lowest-scoring item, at 34 percent favorable, and while its link to intent to stay was modest overall, these two groups are where that link is likely to be strongest. Folger and Konovsky (1989) found that how pay decisions are made shapes trust and commitment, so explaining the fix matters as much as funding it.

What to Do Before the Next Review Cycle

Two adjustments are recommended for the county's July pay cycle.

For assistants with one to three years, an adjustment of $0.60 an hour would restore a gap of about $0.90 over new hires, roughly the value of one step. With assistants averaging thirty weekly hours, the yearly cost across 45 of them comes to about $42,000.

For librarians with three to six years, an adjustment of $0.80 an hour would place them, on average, slightly above recent hires. For 20 librarians at full time, the annual cost is about $33,000.

The combined cost is about $75,000 a year, roughly 0.6 percent of the library's payroll. Gerhart and Rynes (2003) noted that pay structures must balance external competitiveness with internal consistency, and the county's hiring-rate increases bought the first at the expense of the second.

Preventing a Repeat

The analysis also recommends a rule: whenever the hiring rate for a job rises, the pay of current employees in that job below the new rate plus one step is reviewed in the same cycle. Without that rule, every future market adjustment will recreate the problem.

Checking Individuals, Not Only Averages

The averages above describe groups, but adjustments are made person by person. The HR analyst listed every assistant with one to three years of tenure and compared each person's rate with the current hiring rate plus one step. Of the 45 assistants in that band, 38 fall below that line and would receive an adjustment; 7 are already above it, usually because they were hired at a higher step during an earlier shortage, and would not. For librarians with three to six years, 17 of 20 fall below the average rate of recent hires and would be adjusted. The cost estimates above assume all 45 and all 20 receive the full amount, so the true cost will be somewhat lower.

Explaining the Adjustment

How the adjustment is explained will matter as much as its size. Employees who receive it should be told that the library found their pay had fallen too close to, or below, that of newer colleagues because of changes to hiring rates, and that the adjustment restores the intended gap. Employees who do not receive one should hear the same explanation and see the rule applied to everyone. Describing the change as a correction rather than a reward avoids the impression that some staff were favored.

The adjustments should be reflected in the salary scale's guidance for managers, so that future placement decisions use the same logic.

Limits

Averages by tenure band hide individuals; some assistants in the 1-to-3 group may already be paid well and some over 3 may be compressed. The adjustment should be applied person by person using the same rule, and the full list should be reviewed before July.

References

Adams, J. S. (1965). Inequity in social exchange. In L. Berkowitz (Ed.), Advances in experimental social psychology (Vol. 2, pp. 267-299). Academic Press. https://doi.org/10.1016/S0065-2601(08)60108-2

Folger, R., & Konovsky, M. A. (1989). Effects of procedural and distributive justice on reactions to pay raise decisions. Academy of Management Journal, 32(1), 115-130. https://doi.org/10.2307/256422

Gerhart, B., & Rynes, S. L. (2003). Compensation: Theory, evidence, and strategic implications. Sage.