This morning I was reading an interesting article on two-tier wage systems.
For those that don’t know what a two-tier wage system is, it’s a wage structure in which one group of workers receives different – typically superior – wages and/or benefits than another. As a general rule the higher compensated group is made up of the more senior employees in a given workforce.
The primary appeal of a two-tier wage system for employers is that it allows them to drive headcount costs down over time. Done the “right” way (i.e. if the wage disparity is large enough), median salary within a population can be permanently driven down via attrition as the older (more highly paid) workers retire.
…So back to the article. It highlights that two-tier wage systems have created lots of resentment, turnover, and performance issues in work-forces in which they are prevalent. What’s interesting about this to me is what it says about how far away we are from being able to have meaningful pay disclosure in the workplace.
In truth, most people in exempt (and often even non-exempt) jobs work with someone who makes much more money than them that’s doing the same job duties. Number of years on the job, performance, negotiation ability at hire, and even differing pay philosophies by an organization at respective dates of hire are just a few of the reasons pay between two employees in the same role may differ.
Being a compensation guy, I’ve kind of accepted that people aren’t always paid the same way for the same work – particularly when looking at the broader market (and there are lots of good reasons for this).
With that said, if we can reach a point where people learn to accept that pay disparities exist (and understand the reasons why) we could start to see greater pay disclosure (which will lead to more efficient markets).
The question is: When will we get there?
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