Pay inversion occurs when what situation arises?

Pay inversion refers to a situation where new employees receive a higher salary than experienced employees in the same job. This can occur due to various factors, such as competitive market conditions, where organizations may need to offer attractive salaries to attract fresh talent. As a result, seasoned employees, who have been with the organization longer and possess more experience, find themselves earning less than new hires, creating dissatisfaction and potential morale issues. This scenario undermines the value of loyalty and experience, as well as potentially leading to retention challenges, as experienced employees may feel undervalued and choose to leave for better-paying opportunities.

The other options do not address the core issue of pay inversion. While experienced employees receiving bonuses, frozen pay raises, or performance pay exceeding base salaries can involve other compensation dynamics, they do not specifically encapsulate the scenario where new hires earn more than their seasoned counterparts—central to the concept of pay inversion.