Companies across the U.S. economy are raising pay to recruit workers in a tight labor market, increases that are rippling through firms and prompting employers to rethink pay for existing staffers.
So-called wage compression—when pay for new hires or entry-level staff approaches what longtime staff or senior colleagues make—poses a financial and management challenge for employers, and has gained new urgency as companies fight to attract and retain employees amid record-high rates of job-quitting.
When companies announce pay increases for entry-level jobs, they also send signals to their internal workforces, said Diane Burton, academic director of the Institute for Compensation Studies at Cornell University’s ILR School and a professor of human resource studies. Those signals can prompt companies and individuals to reassess the value of skills, experience and seniority.
“The symbolic aspects of wages matter. People want to know how they stack up,” Dr. Burton said.
Chipotle Mexican Grill Inc. said in May that it was lifting its pay for hourly positions to an average of $15 an hour, amounting to an average raise of around $2 for front-line workers. Months before making the announcement, the company completed an analysis of how the change would affect pay for entry-level crew members along with other roles, from hourly kitchen and service managers to the salaried general managers who oversee a store’s operations, said Marissa Andrada, Chipotle’s chief diversity, inclusion and people officer.
