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Avoiding Wage Compression: How to keep your employees feeling valued

In April 2023, the UK minimum wage increased for all ages, with over 23s now earning £10.42 an hour. While these increases are great for workers who earn the lowest wages, they may be having a damaging effect on the rest of your workforce.

One reason for this – unless your company is feeling super generous – is wage compression, where the difference between the pay of your lowest earners and that of everyone else shrinks. This, of course, can lead to demotivated employees and high turnover rates. In this blog post, we will discuss how to keep those who are paid above the minimum wage feeling valued without having to increase their wages too.

But first, how much of a problem is wage compression really?

In order to understand this, the best approach is to take a look at the wage breakdown of your workforce to identify how many people earn just above the minimum wage level and why. This will help you understand how much it should affect your business and how best to respond.

For example, are these individuals earning more because they hold more or greater responsibilities than their colleagues on minimum wage? If so, their salary may no longer be fair compensation and their pay may also need to be reviewed.

Or do they line manage employees on minimum wage? If the difference in pay has become very small, this may affect the manager/employee relationship and impact productivity and employee morale. A solution here could be to offer training to the relevant line managers to help them assert authority.

Perhaps some of your employees who earn just above minimum wage got to that point by securing a pay rise for a job well done? By seeing their colleagues earn pay rises automatically, this could deter them and others from giving their best to their roles in the future.

So as you can see, wage compression can be a problem and unless you are able to give everyone’s salary a boost, it’s wise to look at other ways you can offer rewards and make them feel valued.

Let’s dive in.

How to overcome the damage of wage compression

Offer benefits

Offering benefits is an effective strategy to combat wage compression and keep your employees feeling valued. When you provide additional perks like health insurance, gym memberships, or company-sponsored training, it enhances the overall compensation package beyond the base salary. These benefits hold a tangible value and are often perceived as an integral part of the pay, making each employee feel recognised for their efforts. This in turn should foster employee loyalty, job satisfaction, and productivity, thereby reducing the risk of wage compression and the related dissatisfaction.

But beyond benefits of financial value, you can also reward your employees in ways that truly matter to them. For example, flexible working or sabbaticals could help parents or younger employees.

Provide training opportunities

Another way to keep your employees feeling valued is to provide them with training. We mentioned above that it could help line managers to learn how to assert greater authority over their direct reports who earn almost as much as they do, but it can also help employees gain more knowledge and skills in their fields of expertise, making them more valuable and increasing their chances of earning higher wages in the future.

Give them a new responsibility

This may seem counterintuitive to give more work to those earning above minimum wage without additional compensation but hear us out. Why not create a committee which has the opportunity to find solutions to problems affecting the business, and have them present their ideas to the senior leadership team? This exposure to board level responsibilities could give them status and experience worth more than any pay rise.

Implement a recognition programme

Does your company have a recognition programme in place? This can be as simple as sending out an email recognising an employee’s achievements or giving out small tokens of appreciation. Recognition programmes can be a low-cost way to boost morale and productivity and they can also serve as a way to bridge the gap between managers and employees, allowing for better communication and collaboration.

Promote a culture of career progression

If you want your employees to feel valued and motivated, show them a clear path to advance in their jobs. This means offering promotions based on their performance and skills, giving them the chance to earn more money in the long run. When employees know their hard work will be rewarded, they’ll be more motivated to do their best. Additionally, providing mentorship or leadership programmes can help employees succeed and move up in their careers. By creating this kind of environment, you not only improve job satisfaction and retention but also maintain a fair wage difference between entry-level and higher-level positions.

In conclusion, wage compression can have serious implications for workforce morale and productivity, but it’s not an insurmountable problem. By implementing a well-considered combination of benefits, training, recognition programmes, and fostering a positive work environment, you can ensure that all employees feel valued, regardless of their wage level.

For more information or support, get in touch with Lodge Court.