Pay Compression: Why Young Professionals Are Growing Increasingly Frustrated in 2026

Pay Compression Is Fueling Discontent Among Young Employees

Pay compression is becoming an increasingly serious workplace issue in the UK, with many young professionals questioning whether their experience, responsibilities and contributions are being fairly rewarded.

New research from HR software provider Iris Software Group has revealed that 71% of young professionals struggle to stay motivated when they are expected to train new recruits who earn almost the same salary.

The research found that the average difference in annual pay between experienced junior employees and new starters is just £650.

For employees who have spent several years developing their skills and taking on additional responsibilities, such a small pay gap can create a strong sense of frustration and undervaluation.

Young Professionals Feel Undervalued

The impact of pay compression is already being felt across the workforce.

According to the research, 69% of young professionals who discovered what their colleagues were earning said they felt devalued, frustrated or disappointed.

For some employees, the situation has prompted immediate action. Around one-third have approached their current employers to request a salary increase, while 16% have already accepted offers from other employers.

The findings highlight the growing importance of transparent and competitive pay structures for businesses looking to attract and retain talented employees.

What Is Pay Compression?

Pay compression occurs when the salary difference between newly hired employees and existing employees with more experience becomes unusually small.

It can happen when employers increase starting salaries to attract new talent but fail to make corresponding adjustments to the salaries of existing employees.

As a result, an employee who has been with a company for several years may discover that a new colleague performing a similar role is earning almost the same amount—or, in some cases, even more.

Iris Software Group surveyed 500 UK employees with between two and five years of experience, alongside 511 senior HR directors, to understand the scale of the issue.

Stephanie Coward, Managing Director for Human Capital Management at Iris, highlighted the frustration experienced by employees who take on additional responsibilities while seeing little financial recognition for their experience.

Why Is Pay Compression Increasing?

Several factors are contributing to the growing problem.

One major factor is the increase in starting salaries caused by external economic pressures, including increases to the National Minimum Wage and National Living Wage.

Employers may need to offer higher salaries to attract new candidates in a competitive labour market. However, if existing employees’ salaries are not reviewed at the same time, the gap between new starters and experienced employees can quickly narrow.

Internal company processes are also contributing to the problem.

HR leaders surveyed by Iris indicated that many businesses are not reviewing salary bands frequently enough. Nearly half of HR directors expect salary bands to become significantly tighter over the next two years.

Young Employees Are Becoming More Willing to Leave

Pay compression isn’t simply a payroll issue—it can become a serious employee retention problem.

Nearly a quarter of HR directors surveyed said their existing systems were unable to effectively connect pay adjustments with employees’ skills, responsibilities and capabilities.

This makes it difficult for organisations to identify where pay compression is occurring and determine which employees may be at risk of leaving.

The research also found that 84% of HR directors are concerned about losing talented employees because of pay compression.

Despite this concern, only around one in five companies plan to introduce targeted salary adjustments to address the issue.

What Can Employers Do?

Employers need better visibility into their salary structures and should regularly review compensation across different levels of experience.

Businesses can take several steps to reduce the impact of pay compression:

• Regularly review salary bands and pay structures.
• Compare the salaries of existing employees with current market rates.
• Recognise increased responsibilities and skills through targeted pay increases.
• Create clearer career progression pathways.
• Use reliable HR and payroll data to identify salary disparities.
• Have open conversations with employees about compensation and career development.
• Ensure experienced employees feel valued when they are asked to train or mentor new recruits.

Stephanie Coward also encouraged employers to use data to identify pay compression early and take action before frustrated employees decide to leave.

Better visibility can allow companies to respond through targeted salary increases, clearer progression opportunities or more informed conversations about the value of employees’ experience.

The Bigger Picture

Pay compression is becoming an important challenge for employers in 2026.

As starting salaries rise and competition for talent increases, companies that fail to regularly review existing employees’ compensation could face growing dissatisfaction, lower motivation and increased staff turnover.

For young professionals, the issue is about more than salary. It is also about recognition.

Employees who have gained experience, taken on additional responsibilities and helped train new colleagues naturally expect their contribution to be reflected in their compensation.

For employers, addressing pay compression early could be the difference between retaining experienced talent and watching valuable employees walk away for better opportunities.

Key Takeaway

Pay compression is no longer an issue businesses can afford to ignore. Regular salary reviews, transparent progression pathways and targeted pay adjustments can help employers maintain employee motivation, recognise experience and retain talented professionals.

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