This article was published on June 27, 2022

Pay compression is widening the gap between new and existing employees

"Bye, see you never," said all your old employees.


Pay compression is widening the gap between new and existing employees
Amanda Kavanagh
Story by

Amanda Kavanagh

Amanda Kavanagh is a Dublin-based journalist and content writer with over a decade of experience writing and editing across digital, print a Amanda Kavanagh is a Dublin-based journalist and content writer with over a decade of experience writing and editing across digital, print and social.

Business owners have known the value of loyalty for a long time. From customers collecting stamps for retail loyalty programmes, to Air Miles, coupons, plastic cards and mobile apps, the mechanism has changed but the rationale remains: repeat purchases are key for growth in almost all businesses.

Similarly, businesses also know that employee loyalty will help a company advance. From driving positive customer experiences to improved productivity and production, the benefits of employee loyalty are also well documented. So why then did a recent social media post on rewarding existing employees cause such a stir?

The LinkedIn post in question was posted by Robert Sweeney, CEO at Facet and former Netflix employee, who detailed how he had been only working at Netflix a few months when the company hired someone new into the same position but at a higher salary.

Netflix increased his salary to match, a practice Sweeney has carried through at Facet. He wrote:

“If you have to pay more to hire new employees that means the market has gone up and your current employees need a raise to match. Don’t punish loyal employees for sticking with you by allowing their compensation to fall behind the market.”

Seems pretty right on, right? Well, reactions were mixed to say the least. While loyal employees commented in agreement and praise — with one eye on the rising cost of living. Others argued against the practice, saying that in this difficult hiring market, companies need to offer above market rates to attract talent and that, when it stabilizes, they’ll be at a competitive disadvantage to those that didn’t hire during this time.

Resentment festering

The reality is, it’s demotivating for loyal employees to see a newbie breeze in on a higher salary, especially if it’s in a role with less responsibility. That annual 3% salary bump loyal employees get — if they’re lucky — is hard-earned. Resentment can fester and grow quickly in this environment.

A Jabra report also says that, since the pandemic began, 48% of all employees surveyed have considered changing jobs. In one short year, we’ve bounded from The Great Resignation to the Great Layoff, with 17,000 tech workers laid off in May 2022 alone. Meanwhile, a Microsoft survey of more than 30,000 global workers earlier this year found that four in 10 were likely to consider changing jobs in 2022.

For those companies who are hiring, particularly into remote roles, there is a lot of strong talent available at the moment. And at the same time, between inflation, investment freezes as interest rates rise, and looking ahead to a looming recession, many companies are acting cautiously.

The consequence of these elements is what labor economists call “salary compression.” As companies tighten their belts on current salaries, they’re also paying higher salaries to attract new talent, causing the gap between the two to widen.

On paper, your salary is meant to align with your experience, results, and skills, but that isn’t always the case. Job hunters have always known that being a new recruit is the most powerful position to negotiate a better salary. If you are demotivated by salary compression in your workplace and feel undervalued, it may be time for a change.

List and put in order your priorities for a new role and consider: flexible working, salary, title, benefits, management, progression, hours, company mission, and company culture. Then hit up the TNW House of Talent Job Board to see what’s out there. You’ll find good starting salaries at plenty of organizations. We’ve got three to check out below.

Vestiaire Collective

The premium global online marketplace for pre-loved fashion is hiring for a number of roles in Paris and Tourcoing, Vestiaire Collective has 650 employees and offices around the world. The company is now hiring a Senior Global Affiliate / Partnerships Manager (F/M/D) to manage the global affiliate programme, and direct acquisition partnerships and nano influencers. The job spec mentions significant investment in learning and growth, alongside a competitive compensation and benefits package.

eBay

A brand that needs little introduction, eBay is hiring roles across the US, and in London, Amsterdam and Paris. This Senior Java Software Engineer role will suit an experienced engineer looking for a competitive salary and generous benefits. Based in London, eBay also offers support for working from home. The successful candidate will be part of eBay’s Shipping agile teams, working with Java/Spring across the entire eBay stack, including internal and external APIs, systems, services and tools.

UiPath

A leader in robotic process automation, UiPath helps companies reduce costs and operation errors by automating repetitive work. It is hiring a Product Manager – Task Mining for its office in Eindhoven to define a vision and strategy for products in the Task Mining space. This role involves outlining and progressing a product roadmap and developing new features by working closely with in-house design and data science teams.

Keen to work with the biggest and most innovative brands in the industry? Visit the House of Talent Job Board now, and bookmark the link for regular check-ins

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