It is no secret that the U.S. has been in a tight labor market ever since hoards of Americans left the workforce during the pandemic, so employers have been sweetening the pot for potential new hires in order to backfill those open positions. However, that has led to another problem that is “killing” companies right now, according to one expert.
Jason Greer is the founder of St. Louis-based labor management and employee relations firm Greer Consulting, Inc. and helps organizations of all sizes, from small and medium-sized businesses to Fortune 500 companies like Nike, to other major employers like the U.S. Army, earning him the moniker, “the Employee Whisperer.”
He says wage compression – defined as when a longtime employee’s wages have not kept up with market demands but new hires make the going rate – is breeding resentment that is silently destroying companies and many do not even know it.
Greer provides the scenario of an employee who has worked with a company for 10 years, “pouring blood, sweat and tears into it,” and is capped at a certain wage rate because they have been with the company so long. Then the company hires someone new to do the exact same job, but at a markedly higher wage, and asks the employee who has been there for a decade to train the newbie.
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“They tell employees not to talk about salaries, they tell employees not to talk about how much they make, but everybody talks about it,” Greer told FOX Business. “What’s happening from an employee relations standpoint is it’s become the silent killer, because you have employees who are sitting back saying, ‘Let me get this straight: You can afford to pay them more money, but we’ve been asking for raises for the better part of the past four years and you haven’t given us a raise, claiming that the company can’t afford it. So is it that the company can’t afford it, or you don’t think that I’m worth the rate?'”
At that point, the workplace becomes toxic, Greer said, because oftentimes longtime workers will take out their frustrations on the new hires who are better compensated, even though it is not their fault, because longtime employees feel they cannot direct their anger at the company due to the risk of being fired.
Oftentimes, he says, it causes those new hires to leave. “So you have employees who are not readily accepted or readily embraced in the manner which they should be, simply because they are the victims of wage compression, and they have no idea that that was the case.”
The issue also destroys employees’ trust in the company.
Wage compression is a significant factor in what is causing a surge in unionization drives, according to Greer, who is a former board agent with the National Labor Relations Board.
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He explained, “You have employees who are legitimately saying, ‘My company says it can’t afford to take care of me in terms of a raise, but they’re clearly taking care of the brand new employees who are coming in. We have no trust in our organization. We have no belief that they’re going to do the right thing by us. So let’s go get a third party in the form of a union to actually negotiate our rights.”
Another area where wage compression is hitting companies in the pocketbook is turnover.
“Financially it’s brutal,” Greer said, pointing to the cost of replacing new hires, such as interviewing, background screenings, onboarding and orientation. However, the biggest blow for companies is that they are losing long-tenured employees who are really the lifeblood of their respective departments but were never recognized for it, he added.
Greer said that many times, companies do not even know the impact some of their longtime workers have, because even if those employees aren’t in a managerial position, other workers will come to them rather than their own supervisors because they trust the tenured employee’s guidance.
When longtime employees leave for greener pastures, as many have over the past few years, they take all their institutional and procedural knowledge with them, and those departures are an incredible loss for a company.
“So what ends up happening is, you’re left with a bunch of brand new employees who are making more money than the employees that were there before they decide to leave,” Greer said. “And you’ve lost all your institutional knowledge, and you’re paying these folks at a higher wage than you paid the people who you really should have been paying in the first place.”
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