Minimum Wage Requirements and Wage Compression

by Courtney LeCompte on July 11, 2016

in Compensation

Compression

In March of 2016, Oregon’s Governor Kate Brown signed Senate Bill 1532, enacting the nation’s first geographically-tiered minimum wage law. Effective July 1, 2016, the law increases minimum wage levels over a six-year period. It will impact more than 100,000 low income workers throughout Oregon in its first year.

One concern employers have over Oregon’s new minimum wage law, is its ability to cause wage compression. Wage compression arises when employees have small differences in pay, regardless of their experience, education, skills, or seniority. Wage compression in an organization can decrease employee morale, a leading contributor to productivity and profitability loss.

Planning ahead is critical when tackling wage compression issues:

  1. Evaluate Your Current Pay Levels and Pay Structure
    Perhaps the July 1,2016 minimum wage increase did not affect your pay grades significantly, but don’t forget that these are annual adjustments moving forward (at least through 2022). Plan ahead and evaluate how the adjustments in 2017, 2018, 2019 (and so on) will impact your current structure.
     
  2. Compare Minimum Wage Increases to Your Pay Grades
    Your pay grade adjustments will most likely increase at a lower rate than the annual minimum wage over the next 6 years. Calculate projected adjustments to your pay grades from 2016 to 2022, then compare each of those years to identify any instances of wage compression
     
  3. Plan Accordingly
    Discuss any wage compression findings with your executive team and decide how to best address these situations. One option may be to increase the adjustment percentage for select pay grades throughout an extended duration to absorb the increases gradually. Another option may be to wait and adjust the pay grades in accordance with the minimum wage law at the time of compression. Regardless of the action chosen, having a plan established will lessen the likelihood of wage compression occurring.

If your organization would like assistance establishing and developing formal compensation practices, or you simply have questions, our compensation team is here to help. Please contact us at 503.585.4320 or email Carey at cklosterman@cascadeemployers.com or Courtney at clecompte@cascadeemployers.com.

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