What is an implication of having red circle rates in a compensation strategy?

Red circle rates refer to pay levels that are above the maximum established salary range for a given job. In a compensation strategy, the implication of having red circle rates is that it can lead to potentially problematic salary compression.

Salary compression occurs when there is a narrow wage difference between employees who perform similar roles at different experience levels. For example, if newer employees are hired at competitive rates within the established pay structure, and existing employees remain at red circle rates, it can create disparities that demotivate current staff. Workers who are experienced and established in their roles might feel undervalued if their pay increase is minimal compared to newly hired staff, despite having similar responsibilities.

This situation can erode morale and lead to difficulties in recruitment, retention, and overall job satisfaction. Hence, recognizing the implications of red circle rates is important for maintaining a balanced and equitable compensation strategy within an organization.