In a number of settings, the principle that rewards for the same job should be standardized no longer applies. Pay systems in many countries now include variable, discretionary elements in addition to base pay. Pay differentials can result from decentralization of the pay determination process, as well as from structural variations between different organizations, groups of employees, locations, or sub-sectors. Experience in the OECD shows that governments have been able to increase compensation flexibility without damaging consequences. Clearly, the debate surrounding performance-related pay in the civil service is far from over.
Vertical compression is the ratio between the top and bottom salaries in the civil service.
There are different ways to calculate vertical compression. One is to divide the salary at the midpoint of the highest public employee pay category by the salary at the midpoint of the lowest category. An important reason to look at vertical compression measures is that a highly compressed wage structure reduces civil servants' incentives to pursue a long and successful career in the civil service by reducing the appeal of promotions. Thus, incentives for productivity are less powerful. In some cases, wage compression may also encourage moonlighting.