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Hi Jim,

I’m also surprised we have not heard more questions about the pay compression issues and suggestions on how to deal with them. It does not stop by just moving the employee making $8.00 to $10.10, what do you do with the employee making $10.50, $17.00 or $25.00? At what rate do you stop mitigating for compression? If your starting rate is $8.00 and you raise these employees to $10.10 what do you do with the employee making $9.00 and $10.00?

What if government contracts are only a small part of your business and you have to raise the wages of all impacted employees. Can you raise your fees on those contracts to cover all costs or will it also impact margins on non-government contracts?

How many of these impacted companies will take the opportunity to correct individual pay for performance issues in the process? Are they looking at this as a bigger opportunity?

There is no “one size fits all” answer.

Increases of this magnitude far outweigh anything one would typically find in the market place; especially since duties and responsibilities are not required to be enhanced. So the first thing you have is increased cost with the "anticipation" these new, higher rates of pay will infuse the workers with greater efficiency and higher quality.

Also brought to mind is the question for the government contractor employers. "If the contractor employs other companies in contract to them for on-site services, does the new lower rate apply to them as well? I am thinking cleaning and dining services that may typically contracted to companies that specifically perform those functions.

How far will the compression issues reach? 39% reaches a long distance over salary grid structures in both the same level of responsibility as well as positions of greater responsibility.

It would be interesting to know how the issue of compression was handled the last couple of times minimum wages increased. Yes, I know it's not exactly the same issue: the minimum wage didn't just apply to federal contractors and there was not a 39% jump ---- but I'm sure they caused compression. So how were they dealt with then?

All good comments and questions. If you are affected, everyone working on a covered federal contract must make at least $10.10. New minimum wage pay compression adjustments involve the same options that have always been followed, usually chosen according to how your lowest paid hourly earners cluster statistically. Mitigation cutoff points can be problematic. http://www.compensationcafe.com/2011/12/2012-state-overtime-changes.html refers to the seminal August 1988 article in The Personnel Journal on Increasing Minimum Wages Without Maximum Costs. Lots of ways to handle it.

I for one welcome our new roboproles:


Don't suspect many burger-flippers are federal contractors, so they might not be directly affected. Hope you realize that particular occupation was reclassified by the government from the service sector to the manufacturing sector some time ago. It is one reason "manufacturing jobs" didn't drop so dramatically as factories disappeared in past years. A whole bunch of positions were switched from the service category to the manufacturing category.

I can't help but wonder if the impact of this change is really going to be as great as what we might "initially" anticipate. Has anyone seen any studies based on hard data (e.g., BLS) that provide a preliminary impact assessment? What percentage of our federal contractors actually have current starting rates below $10.10 per hour?

Hi Jim,
It is not just the employees making less than $10.10. It is also the expectations and pay compression issues for employees making over this rate that impacted companies need to think about.

JJ: The most granular broad BLS sampling that I can recall is the OES survey. That doesn't ask for the actual pay rate but instead merely requests a headcount by income bracket for wide occupations, like a "receptionist" entry would carry a count of 8 in the box for the appropriate wage range like below
Range A | Under $9.25 | Under $19,240
Range B | $9.25 to $11.49 | $19,240 to $23,919.

So BLS can not identify how many earn under $10.10 because they don't collect actual integer wage rates for the sample used for their estimates.

TN: Bingo! Imagine the ripple effect from all the folks who spent years climbing from $7.25 (or lower in earlier times) only to see the grade school dropout on his/her first job starting today at their hard-earned veteran pay level. The cry of "unfair" will ring loud throughout the land. Those unaffected will shout, "where's MINE?" Supervisors will weep. Unions will rejoice. Things will get interesting.

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