Getting started in a new career has always been challenging, but since the year 2000 it has also been less rewarding, at least in the financial sense. When adjusted for inflation, the hourly earnings of young college graduates ages 23 to 29 have been falling. According to the Economic Policy Institute, male graduates’ wages fell by 11% to $21.68 per hour in the decade leading up to 2011, while female graduates’ wages saw a decline of 7.6% to $18.80 per hour. (College graduates still earn significantly more than high school graduates, however.) One reason for the downward trend is high unemployment persisting since the recent recession. But wages paid to young workers began falling even before the recession started. Companies are not typically cutting wages for the workers already on their payroll; rather, they can reduce payroll costs by paying lower rates to their newly hired employees. The practice can boost the bottom line, but it leaves human resource managers with a significant challenge. A recent survey by MarketTools found that one-fifth of employees have been trying to find a new job, and their top reason for wanting to leave was dissatisfaction with their pay.1
From the employer’s point of view, pay is a powerful tool for meeting the organization’s goals. Pay has a large impact on employee attitudes and behaviors. It influences which kinds of employees are attracted to (and remain with) the organization. By rewarding certain behaviors, it can align employees’ interests with the organization’s goals. Employees care about policies affecting earnings because the policies affect the employees’ income and standard of living. Besides the level of 340341pay, employees care about the fairness of pay compared with what others earn. Also, employees consider pay a sign of status and success. They attach great importance to pay decisions when they evaluate their