IV$.$ SALARY COMPRESSION

Salary Compression is a common issue faced by all organizations in the U$.$S$.$ and has been worsening since the pandemic because of labor shortages and inflation. Also referred to as wage or pay compression, salary compression occurs when the pay of newer employees is very close to$,$ the same as$,$ or more than, the pay of more experienced and$/$or senior employees in the same job. Another form of salary compression is when employees in lower$-$level jobs are paid almost as much as their colleagues in higher$-$level jobs, including managerial positions.

Instructions: Please read the following compensation compression case. Respond to the question at the end of the case using your own ideas on how you think this situation would be best solved. Think about budget, employee eligibility for adjustment $($e$.$g$.$ date of hire, performance, position in range$),$ period of time and other factors you may wish to consider. Your reasoning and rationale behind the decision$($s$)$ you make will be most considered in evaluating your salary actions.

Case

The pharmaceutical industry has become increasingly competitive while facing stricter regulatory environments. Certain therapeutic areas such as oncology and infectious diseases have become $$hot$$ research segments and all the major pharma companies are clamoring to hire accomplished and talented people in order to be the first to market with a blockbuster drug in not only these areas but other therapeutic areas as well.

ACME Pharmaceuticals has found it increasingly difficult to attract new scientists to join the organization plus have recently experienced escalated scientist turnover levels to above industry norms.

You as part of the company$$s compensation team have been called in to look at scientist pay to analyze current pay levels. You discover the R&D managers have a philosophy to only hire new $1$st level scientists in the bottom third of the range regardless of background and level of experience. After the scientists are on board for one year they receive annual increases based on performance and budget. Essentially even though the salary ranges have been consistently in line with market the total average, scientist salaries are below the general pharmaceutical market.

In cases where managers wanted to offer beyond the $1$st third of the range due to candidate backgrounds and requirements, the new hire salary created compression issues. $($Compression is when new hires have salaries above those of current employees who may be more seasoned and experienced with longer company service.$)$ As a result, managers have been reluctant to hire individuals with higher salary requirements even when they would have been beneficial to the department and to the company.

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Scientist I Salary Range:

Additional Facts

$$ Average $1$st level Scientist Salary: $$70,000$

$$ # of Scientists: $350$

$$ Salary Increase Budget for R&D: $5\%($Already spent during annual increases$)$

$$ Discretionary Budget $($Promotion $+$ Adjustments$)$

o $1\mathrm{.}0\%$ of Payroll Budget $($$$32,500,000)=$ $$325,000.$

$50\%$ of annual discretionary budget has already been spent leaving $$162,500$ for the remainder of the year. $4$ months are left in the budget year and other potential salary activity is also pending.

o Finance and HR are working on next year$$s budget. They have decided to allocate $$502,125$ to the discretionary budget taking into account the new payroll after annual increases plus increasing the discretionary budget from $1\mathrm{.}0\%$ to $1\mathrm{.}5\%.$

Explain what you do as the compensation analyst and recommend to R&D management to help them resolve this issue?

Your Response: