I recently did a research paper for an MBA class on pay compression. Pay compression happens when someone is hired for a job and they don't move forward very fast in pay. Most of the peers in the department gravitate to about the same pay range relatively quickly. Meanwhile, the market is moving up and down. When someone new is hired, to be competitive the company may need to bring the new person in at a rate that may be higher than what most of the current staff is currently making. Most companies will not adjust the whole department to make it more market-adjusted. Therefore it becomes necessary to leave the job just to get a satisfactory pay increase. And since many employers want pay history (and some check that info) it may not be possible to leave and get anything other than a lateral move. Ironically, I have seen many people make their biggest jump when they leave and then
come back!
I just realized that I have been within 5% of the same pay since 2001. The years 2001-2004 were pretty bad in this area with local companies. Employers that I have worked for had a company or departmental policy that 3% raises would be distributed between all department workers (if you worked 60 hours a week you might get 3%, otherwise it would be between 0-3%, with many getting 0%). Moving to another job the new employer had a policy not to offer more than 3% of existing pay.
Now supposedly the economy is improving and the market is heating up, even, surprisingly, locally. And the "brain drain" is happening too. One of my friends moved to OKC and increased his pay by 90%. Dallas, Raleigh, and even Cedar Rapids, IA are doing well and seeing some tight tech worker shortage and the compensation and competition is picking up.
What is your experience with pay compression? Do you think that the market is picking up? What do you see in your areas?