Salary Compression: What It Is and How Pay Transparency Reveals It

By Janet L. Duncan, Human Resources Director, Warren Whitney

If you’re interested in “what is salary compression” or “why does pay transparency cause pay compression,” here’s the direct answer: salary compression happens when a new hire’s pay is close to, equal to, or higher than a current employee’s pay in the same or a similar role and pay transparency laws like Virginia’s HB 636 tend to expose it, because the range is now visible to everyone, not just HR.

A real-world example of how compression shows up

Consider a long-tenured employee earning $58,000. Their organization posts an opening for the same role with a range of $55,000 to $75,000, as required under HB 636. That employee is now sitting near the very bottom of a range that a brand-new hire could enter at $75,000, nearly $17,000 higher, on day one.

There may be a legitimate reason for that gap: the market has moved since the employee was hired, the role has changed, or the range reflects a wider band than any one person’s actual pay. But if the organization stays silent about it, the silence tends to do more damage than the number itself. Employees fill an unexplained gap with the least charitable explanation available.

Why pay transparency brings compression to the surface

Before salary ranges were required in postings, compression could exist for years without most employees noticing. HB 636 changes that. Once a range is public, internally and externally, a current employee doesn’t need to guess where they stand. They can see it directly, compare it to their own pay, and draw their own conclusions in the absence of an explanation from the organization.

This is one of the reasons pay transparency isn’t just a compliance exercise. It’s also an internal equity exercise, because it forces organizations to look at questions many had been able to defer:

• If current employees are below the range, why?
• If the range is wide, what does the top end actually represent?
• If new hires could come in higher than current staff, could that create compression?

How to address compression before a posting goes live

The work has to happen before the range is public, not after an employee raises it. That means:

1. Review current employee pay against the range you’re about to post, role by role, not just at the department level.
2. Document the reason for any gap: market movement, role changes, tenure structure, or budget, so managers have a concrete answer, not a guess.
3. Decide whether the gap needs to be corrected, and if so, on what timeline and budget.
4. Brief managers before the posting goes live, so the first time they hear about a compression question isn’t from an upset employee.

Why this connects to trust, not just numbers

Compression is a pay-data problem, but the way it plays out inside an organization is a trust problem. An employee who discovers they’re at the bottom of their own role’s range isn’t just doing math; they’re deciding whether the organization values their tenure and performance. That’s the deeper issue behind pay transparency that we cover in Pay Transparency Is Not Just About the Range.

Next steps

Compression is easiest to identify and fix before it’s sitting in a public job posting. Contact Warren Whitney to learn how you can prepare.

About the Author

Janet L. Duncan is a Director at Warren Whitney with more than 25 years of HR and compensation management experience, focused on long-term, competitive strategies to attract, retain, and engage talent, including compensation program design and internal equity reviews for organizations across manufacturing, distribution, healthcare, and energy. Read Janet’s full bio.