As more states and cities continue to raise the minimum wage, affected companies will need to examine the effect of compliance throughout the other salary range or tiers in the company’s hierarchy. As lower level employees’ pay is raised to the new minimum wage, an analysis should be conducted to ensure that the resulting pay differential between level still makes sense. Otherwise, salary compression, or worse, pay inequality, may result.
Compression occurs when there is only a small difference in pay between employees regardless of their skills, experience, or level. Pay inequality results when employees in lower level positions systemically are being paid higher wages than recognized positions of higher rank. In order to prepare for the upcoming changes to minimum wages, it is recommended that a comprehensive review by level, so the full impact can be identified, and rectified, as appropriate.