Learn how implementing an aggressive merit pay program can help HR managers correct pay compression issues between new hires and long-term employees. Expert advice for the SHRM-SCP certification exam.
Table of Contents
Question
An organization raises the minimum pay of its salary ranges. Which is the best technique an HR manager should consider that will correct the compression issue that may occur between new hires and long-term employees?
Answer
Implement an aggressive merit pay program. Pay compression describes situations where there is a small difference in pay between employees regardless of their experience, skills, level, or seniority. To counteract the effects of pay compression, a more aggressive merit pay program can be used.
Explanation
When an organization raises the minimum pay of its salary ranges, it can lead to pay compression, where there is only a small difference in compensation between new hires and long-term employees, despite variations in experience, skills, level, and seniority.
The best technique for an HR manager to consider in order to correct this compression issue is to implement an aggressive merit pay program. Merit pay is a compensation approach that rewards employees based on their individual job performance and contributions to the organization.
By using an aggressive merit pay program, the company can provide larger pay increases to high-performing, long-term employees compared to new hires or average performers. This helps to differentiate compensation based on factors like experience, expertise, and performance, rather than having pay determined primarily by the current market rates that new hires are commanding.
An effective merit pay program should include:
- Clear performance criteria and goals for each role
- Objective methods for measuring and evaluating employee performance
- A structured process for determining merit increases, with larger increases for top performers
- Communication to employees about how the merit pay program works and what they need to do to earn higher increases
- Regular analysis and adjustment of the program to ensure it remains effective at differentiating pay appropriately
Implementing an aggressive merit pay program allows the organization to reward and retain its long-term, high-performing employees, while still enabling it to offer competitive starting salaries to attract strong new talent. This approach corrects for pay compression and maintains a fair and motivating compensation structure for the workforce.
SHRM Senior Certified Professional (SHRM-SCP) certification exam practice question and answer (Q&A) dump with detail explanation and reference available free, helpful to pass the SHRM-SCP exam and earn SHRM-SCP certification.