Tuesday, April 10, 2018

Salary Compression and Step-Grids

I was in my thirties the first time I heard the phrase “salary compression.”  At first I assumed it was an inelegant way of saying “low pay,” which is only half-right.  It’s more commonly used to refer to a salary gap between incumbent employees -- especially longer-term ones -- and new hires that the incumbents consider too small.  They see it as devaluing their experience.

I haven’t seen much of that in my career, whether as a function of location, timing, or both.  But I’m starting to understand how it can happen.

In settings with widespread collective bargaining, there’s usually a relatively strict method for determining salaries.  At Holyoke I sometimes had to quote candidates figures that ended with “...and twenty-five cents” so as not to violate the grid.  Here we use whole dollars, which is a welcome change, but the amount of whole dollars is pretty tightly prescribed. And raises are across-the-board, so everyone in a given role gets the same raise as everyone else in the same role.  (Here, that’s literally true; the current faculty contract gives a set dollar figure raise, rather than a percentage, on the theory that it helps the lowest-paid employees more.) That has its virtues and its downsides -- predictability is good, but high performance isn’t especially rewarded -- but we all know them, and they’re part of the system.  Internally, a grid-and-step system works reasonably well to prevent favoritism and keep the peace.

But the outside world cares not a whit about our step increases.  The market goes where it goes.

In some cases, that doesn’t matter much.  But in roles or fields in which we’re competing with large universities and/or private industry, it’s easy for the step-grid to fall behind the market.  And that brings a real dilemma.

Let’s say that the contract allows you to offer a candidate for a particular role $60,000, but the going market rate for someone with that skill set is $70,000.  What do you do?

  1. Offer what the contract allows, watch the candidate walk away, leave the job unfilled, and hope for the best.
  2. Offer what the market demands, prepare for the inevitable class-action grievance, and hope for the best.
  3. Offer what the market demands, give everyone else the same raise to bring them up, and lay off a couple dozen people to pay for it.
  4. Hire someone who isn’t really qualified, and hope for the best.
  5. Outsource the role, so the contract doesn’t apply.

The careful reader will notice that every option is bad.  That’s because every option is bad.

If we had enough money that we could do it and avoid layoffs, “c” would be the popular and easy choice.  But we don’t. And even if we did, there’s the issue of market volatility. Markets go both up and down. But in the language of economics, wages are “sticky.”  They don’t move down quickly. There are excellent human reasons for that, but it puts limits on how hard you want to chase peaks.

Many colleges, including my own, have chosen option “e” to deal with IT.  Salaries in that area simply outstrip any step-grid, and people with those skills have options.  If you need the services -- and these days, you do -- you may have to go outside the grid. That can create some resentment on campus, but so can a network that crashes regularly.  

The easiest solution politically is “a,” but sometimes that means leaving important work undone.  That can mean more work falling on the people who are already there, or it can mean improvements that don’t happen.  James Baldwin’s observation that poverty is expensive applies to institutions, as well as to people. It’s the human version of “deferred maintenance.”

Although salary compression is often presented as an issue of fairness or novelty, I think it’s more accurately a reflection of a disconnect between the logic of step-grids and the logic of markets.  In a hot market, it may be the least-bad option.