Compensation Erosion—The Silent (and Sometimes Not so Silent) Morale Killer

February 11th, 2015
Written by: Elizabeth Richards

Of all the possible topics that cause hallway grumbling, compensation is perhaps the most anxiety producing for employees. Anything involving their budget, their savings and investment rates and their ability to buy the things they want is bound to produce stress, even in a good economy. And they get a “reminder” of their pay (which can be a proxy for their self-worth) every two weeks via their direct deposit.

Let’s face it, a Compensation strategy is hard for employers to get right for everyone. But that doesn’t mean it should be ignored. Because going more than two-and-a-half or three years without revisiting your compensation approach—relative to the market—typically leads to a gradual erosion of confidence among employees who—at least in their minds—believe that they should be better paid. And may be right.

Perhaps the most important aspect of the previous point is the phrase “relative to the market.” Because what you as an employer believe is fair will only be fair in reality if it takes into consideration what the employee can earn elsewhere. The gap between their market value and the compensation you provide is what causes “compensation erosion.” And that’s what leads to those hallway rumblings—which can often turn into departures of valued staff.

So if you haven’t revisited your compensation strategy relative to the market in two or three years, now’s the time. Because if there’s a potential problem, it’s better to know than to simply hope it doesn’t impact your business.