Compression Raises

I had never heard of compression raises prior to entering the workforce. They're amusing little creatures.

As you might have heard, the energy markets are doing well these days. Unfortunately, there's a severe lack of trained professionals--both blue collar and white collar--to meet the industry's growing needs. This problem got started in the 1980's when the price cycle pendulum was fully extended in the other direction. Layoffs were endemic. Thousands of highly trained professionals left the industry never to return again.

In the 20 years hence, the problem never healed itself. So today we have a labor shortage. The cost to employ quality professionals in the oil & gas industry has skyrocketed over the past few years.

This demand inevitably trickles down to the entry level. The cost to hire kids straight out of college has jumped proportionately. A problem occurs when the entry-level salary floor exceeds the salary of your last batch of new hires. Suddenly egos get bruised. People get jealous. Veiled whispers make their way around the break room. Eventually, the most assertive staff members start squawking to management.

The result? A blanket compression raise is doled out to placate the junior staff. (The senior staff are usually far enough up the payscale to be unaffected.) It's sort of a DC shift to the payscale. And all boats rise with the tide.

I remember when I got my first compression raise. I had been with the company for only 5 months. My boss walked into my office, shut the door, and handed me a handwritten note. It turned out that my starting salary had been set when I accepted the offer -- 12 months prior to coming on board. By the time I reported to work, it was already outdated... by a lot.

The lesson here is particularly salient for school-aged people. The size of your paycheck doesn't have much to do with how hard you work in life. Instead, it's going to be largely tied to the market demand for your skillset. It may behoove you to select a vocation accordingly. When that activity happens to be something you love, I believe you've stumbled onto the path for an extremely satisfying career.