In human resources, salary compression is the phenomenon of pay rates for certain positions within a company being lower than the pay rates of similar positions in other companies. This can happen when a company is first starting out and they cannot yet afford to pay their employees as much as other companies can. It can also happen when a company is going through financial difficulties and they need to cut costs. Either way, salary compression can cause morale problems within a company, as employees may feel like they are being underpaid compared to their counterparts at other companies.