Salary Compaction - What is it? Who wins? Who loses?

Salary compaction considerations started primarily in government jobs as a method of addressing and fixing issues that could arise when a long-time employee is making less than a new employee in the same position. Or supposedly even more seriously for employee morale: a boss making less than a number of new hires.

The reality is that salary compression is a symptom of a salary schedule that is not being managed and keeping up with market salaries. However the reality is that it can also be abused. All a manager needs to do is hire direct reports or recommend indirect reports for hiring that in fact make more money than the manager in question and voila! The manager has just engineered a salary increase for him or herself. In this conflict of interest situation, it is all too easy to think or be led to believe that the candidate with the highest salary request is also the most qualified, the best candidate, etc, etc. when in fact that is rarely the case.

In general in the for profit world, the need to be profitable and stay within certain budgets forces managers to not necessarily hire the most expensive but instead the candidate that best meets the needs of the organization including the salary cost.

Which brings me to this week’s Redwood City Council meeting discussion regarding increasing salaries for a number of city staff both long-term and newly created positions due to among other reasons “compaction.” The city has already disclosed the need to bring in more revenues or as they like to call them fees because of a much larger than expected budget deficit and yet instead of solving some of the underlying issues; city staff is proposing once again to make the problem worse by increasing the size of the team and raising salaries.

The winners are staff with higher salaries.
The losers are residents who pay higher fees for less and less services.