Why are new employees paid more than those who have been working for a long time? / Hebrew
One of the most instructive moments in my career happened when I found out that a new colleague was earning more than me. Once, without a second thought, I asked him: “What is your salary?” When I heard that she was 40 thousand dollars a year more than mine, I felt resentment, jealousy and underestimation. How can someone with the same position and experience earn 40% more than me? After this discovery, I started leaving the office early, justifying it by saying that I was not being paid fairly. I ended up leaving the company after a few months. She offered me a counteroffer, promising a raise and a raise, but at the time I felt insulted.
So why do companies do this? Are they deliberately trying to make their employees unhappy? Do they really think that the employees will not find out about this situation? Do they think we will stay anyway, because they are one of the best employers in the world? Later, I worked for a while in the payroll department and saw how sausage is made, so I want to share my thoughts on Why new hires are paid more and why the best way to achieve a salary improvement is to move to a new location.
- 1 Reason 1: Companies really want you to leave
- 2 Reason 2: There are limits to annual salary increases, and the budget for hiring is larger than the budget for salary increases
- 3 Reason 3: HR departments don’t realize the long-term implications of higher salaries for new hires
- 4 Reason 4: Employers exaggerate the value of experience gained at another company
- 5 Reason 5: few people want to solve the task of retaining employees due to inertia
- 6 1. Collect as much information as possible about how payment for work is assigned in your company
- 7 2. Talk frankly with your manager about salary
- 8 3. Report a competitor’s offer
Reason 1: Companies really want you to leave
It may sound incredible, but it is true. Many companies have a layoff plan. Some Big Tech companies fire 10% of their worst employees every year. They want to get rid of people who have been working for a long time but are not up to their responsibilities, so by underpaying them they solve this problem because it will eventually lead to people leaving every year. Of course, the problem with such a strategy is that it also affects quality specialists.
Reason 2: There are limits to annual salary increases, and the budget for hiring is larger than the budget for salary increases
This probably doesn’t apply to small startups that don’t have a formal salary structure, but large companies often have strict policies that limit the amount of an employee’s salary increase.
Example: Let’s say when you started two years ago, the average market salary for your position was $70,000, but now it has jumped to $100,000. However, since the company can increase your salary by a maximum of 5% each year (because this value is tied to inflation, the increase in the cost of living, or some other metric), your salary will continue to lag behind the market average.
Also, many managers have a strict salary/promotion budget for the year, which is often lower than the budget for hiring new employees. Even if your boss wanted to give you a hefty raise to match the market, he doesn’t have the budget for it. And even if they had such a budget, they would have to explain to their management for a long time why they allocated such a large part of it to increase your salary.
Let’s summarize: there is much more bureaucratic red tape involved in raising the salary than in offering a more favorable offer to a new employee.
Reason 3: HR departments don’t realize the long-term implications of higher salaries for new hires
The need to hire X people is an urgent task. And it’s a task that recruiters are highly incentivized to do—after all, their commissions/salaries probably depend on it. And if they can’t hire someone, they just throw more money at him. The task seems to be solved, right? And to hell with them, with employees who work long hours, who will end up getting paid much less. This is someone else’s problem.
Unfortunately, if you talk to HR departments, you’ll find that almost no one is thinking about how this inequality will affect their company in the long term. They are very bad at calculating the costs associated with firing employees. The only costs they see on the P&L are the salary increases required to close their position, not the “hidden costs” such as time to interview new candidates, train new employees, achieve desired productivity levels, etc. All of this is simply considered “business expenses.”
Reason 4: Employers exaggerate the value of experience gained at another company
In addition, I encountered a strange phenomenon in many companies:
experience gained elsewhere is often valued more highly than experience gained in-house
. I have personally encountered this many times in my career – my company lured a new “rock star” from a competitor with decades of experience and fresh knowledge/experience. I often asked, “I have the same level of experience as him! Why don’t you just promote me?! Unfortunately, the company’s reasoning is that our team has led us to a stagnant state in the market, so we need someone new and great to redo everything and steer us in the right direction!
Unfortunately, but I believe that this is only a psychological distortion. We hate when the cost of products or services we already consume increases, but we easily spend more on new ones. The same is true for employees.
Reason 5: few people want to solve the task of retaining employees due to inertia
Retaining the best employees is a confusing, complex and long-term task that few people in the organization want to deal with. There are practically no people whose salary depends on the level of maintenance of employees, but there is hiring of such people. Therefore, the solution of this task is hindered by strong inertia.
And at the same time, they are quite competent. HR and senior management are often aware of the problem. They read the news and hear the stories of HR and management at other companies. Often they even add this task to their list. But its solution is difficult and confusing, because it requires discussions across the entire management vertical involving top management, financial departments, HR, etc. It affects many people in terms of profit forecasting, compensation structures, budgets, etc. To solve this task, you need to analyze a lot of data, conduct research, create forecasts and obtain permits. Therefore, the problem naturally falls to the bottom of the list of priorities.
Furthermore, there is a lack of data to analyze employee retention, and it is unclear to what extent salary and other factors (e.g. personal circumstances, work/life imbalance, etc.) influence this. A certain percentage of employees in any case will be released annually, this is a natural process. How to distinguish usual activity level, from unusual? It probably needs to happen more frequently for organizations to figure this out. That is, the problem can remain invisible for a long time until its scale becomes obvious.
On the other hand, it is necessary to offer competitive conditions when hiring a new employee. This cannot be avoided. Either you pay above market or they will go to the competition. That is, to stay competitive, you have to study salary data from surveys or companies like Pave and Ravio. After all, the salaries of new hires are increasing at the same rate as the salary changes in the market.
Knowing all this, what can you as an employee do if you find out that you are being paid less than colleagues with the same level of experience?
1. Collect as much information as possible about how payment for work is assigned in your company
Before you take decisive action, you should try to understand how the salary is calculated in your company. You should try to ask your manager, the HR department and other employees the following questions: “What is the philosophy of salary calculation? How is our salary determined? Who defines it?
How you get a raise will depend a lot on how your particular company answers these questions. In some companies, for example, in Facebook, salaries are not set by managers, so communication with your direct manager will not be particularly productive. You’re better off trying to talk to someone higher up the management chain or find out how to get a promotion. In other companies, managers have more freedom in making decisions and you will need to decide how to start a tactful conversation with them.
If you know that your company pegs salaries at the 75th percentile of the market average/median, and your salary is in the 50th percentile and you are highly productive, this data can be used as arguments in the conversation.
2. Talk frankly with your manager about salary
Most people are afraid to have serious conversations with their superiors about bonuses, but it’s important to remember that
good managers do not mind questions about salary
. After all, it’s part of their job to ensure your productivity and satisfaction as an employee. In the first conversation, remember that most companies will not give a 20% increase. So instead of asking for a raise, you can say something like, “Hi, I’ve been with the company for X years. During that time I have done X, Y and Z. I know that I am paid X% of the market average and my colleagues are paid above market. What do you need to do to get a raise next year?”
In addition to data on market salaries, it is worth providing tangible information about the contribution you made to the company. By contribution, I mean a non-trivial number of lines of code or number of closed tickets. I mean working on a feature that speeded up the site by 20%, resulting in a 10% increase in conversions. Or the automation of some process, which reduced the number of bugs by 20%. If you can articulate what that contribution is, communication with the manager will be much easier.
Remember that the main thing is not to demand an increase, but to reach an understanding with the manager about how to get this allowance in the future. Maybe you need to learn a few important skills for this? Should you mentor juniors in the team? Or maybe the management underestimates your skills/experience, which is why they are hesitating in the decision to raise your salary? Are you being asked to “prove” that you are underpaid, or are you being told that you will not be able to raise your salary due to the economic situation? (Probably not what you want to hear, but it’s important information!)
3. Report a competitor’s offer
So, you discussed a potential bonus with your manager and he said it’s not possible. Or year after year goes by, but they still don’t raise your salary. What shall I do?
This may sound aggressive, but in my experience, the best way to get your way is to show the manager a competitor’s offer. Yes, it’s easier said than done, but if you don’t feel like your promotion is in the works, it’s very difficult to get a raise unless you show that you’re serious about leaving for another company.
But this in no way means that you need to “show the middle finger” to the manager! You need to show the offer tactfully and say: “Company X has offered me such a position and salary. I love working here and I really don’t want to leave. Is there any way you can solve the problem of my not being paid high enough compared to my colleagues?”
Of course, this is only fair if you really want to continue working for this company. If you feel disrespected, it’s probably better to just accept a competitor’s offer and get the salary you deserve at a new company. After all, there’s no point in staying with a company that doesn’t value your knowledge/skills/experience when you can find one that does.