What is Wage Drift?

Wage drift, also known as compensatory drift, is a powerful concept by which entire families, firms, and economies operate. What exactly does this economic term imply to all of us? Read on as we cover the basics of a concept that affects virtually everyone in the American economy in some kind of way.

Basic Definition

At its heart, compensatory drift is defined quite simply. It is the tendency of wages and compensation actually paid to a worker to be greater than and rise above the actual established pay rate for that worker’s position. If you make $10 for every hour worked, end up working for 40 hours in a week, yet before taxes are applied, somehow earn more than the $400 expected base pay, you’ve experienced wage drift.

So, how does such drift happen? As it turns out, there are many ways in which it occurs, and the employers are well aware of all of them.

Main Factors

Overtime rules and regulations are one way in which actual pay received may grow to be greater than what would otherwise be expected of base pay. Although in our brief example above no overtime is used, if an employee goes over 40 hours worked in a single week, they are then legally entitled to a pay rate of 1.5 times that of their original hourly rate. At this point, they begin to see substantial drift occurring, expanding their expected pay well beyond its normal rate.

Aside from overtime effects, there are many other ways in which drift can occur. Some companies offer performance bonuses that provide substantial pay outside of the expected base rate. Tips are another compensation that cause wages to drift above prearranged levels. Commission is yet another mechanism for compensatory drift. Similar to some bonuses, commission, or additional pay, is paid to some employees based on certain accomplishments they may clock while on the job.

Example

To further your understanding, here’s a hypothetical example of how drift may occur for an employee. Tony works for a sporting goods manufacturer helping to build and ship out bicycles. Here, Tony works for a pre-established pay rate of $10 per hour and always works 40 hours per week for an expected $400 per week total income.

Some weeks, however, Tony finds herself making more than her $400 base pay. This is because Tony’s employer offers a bonus incentive for producing and shipping more than 10 bikes each week, which Tony is often able to do. In addition, the employer offers a safety bonus to its employees: every month worked without a safety incident comes with a bonus $50 check. Now, because of the drift possibilities offered by this safety program as well as the exceptional output bonus for producing over 10 bikes in a week, our hypothetical Tony is often able to earn well above her base pay expectation of $400 per week.

Absence of Drift

While many do, still many other positions and vocations do not incorporate compensatory drift into the pay system. This is often by design, as in some cases, such pay boosts do not fit the model of operations or designated employee purposes. Similarly, it is by design that many employees out there do encounter such drift possibilities. Whether present or absent, drift is a legal concept that is enacted or abandoned by the employer alone.

In our complex economy, it makes sense that concepts such as compensatory drift may be present. Where utilized, it can be a great tool for increased performance at the level of the firm, and increased wages at the worker’s level. In conclusion, these are the basics of compensatory, or wage drift today.

See also: Top 25 Best Affordable Bachelor’s in Human Resources Degree Programs 2014