- Longevity in higher levels often doesn’t pay. In 83% of high-paying job groups, defined as those with an average salary of $125,000 or more, tenured employees tend to make the same or less than new employees
- Pay transparency is one of the reasons. Experts say the overall increase in pay transparency is driving the trend, and bureaucratic slowdowns make it difficult for organizations to keep tenured wages at a level with current new hires.
- Existing employee frustration could be based on a misunderstanding. Many employees may learn about their range placement through their company’s job postings rather than through their own managers. The lack of context and education can result in employees making assumptions about being paid unfairly.
- Full organizational buy-in around transparency is needed. To avoid losing key internal talent because of this openness-driven trend, organizations need transparency from all levels of the company.
The rapid rate of wage growth over the past few years has uncovered a troubling new compensation trend, according to new research: Companies are now paying some new hires more than tenured employees.
In 83% of high-paying job groups (average salary of at least $125,000), tenured employees tend to make the same or less than new employees, according to new research from Syndio. In fact, 30% of the time they actually make less.
The news isn’t all bad for long-term employees, however: Longevity still does pay for three-quarters of job groups paying $75,000 or less (77%).
Based on Syndio’s new analysis of gender-based pay equity analyses conducted over the past year from 48 organizations, jobs at the lower end of the pay spectrum — such as retail, manufacturing and other frontline jobs — continue to pay more for time on the job compared to new workers.
Pay Transparency Pressures
Compensation experts believe pay transparency is one of the reasons for employees believing they are underpaid and need to leave their organization to attain higher compensation.
“Pay transparency pressures our compensation systems to be more consistent and respond more quickly to changes in the labor market,” said Chris Martin, research economist at Syndio. “A competitive labor market has an immediate impact on new hire pay since recruiters are pushing for the offers they believe they need to land candidates in real time.”
But the process for adjusting pay for veteran employees tends to be slower and more bureaucratic since it’s tied up with the budgeting process, Martin said.
“It can be easy to secure or approve a high offer for a new job offer, but it’s much harder to push through a higher merit budget that can keep pace.”
Pay transparency changes the game in two ways, according to Martin: It puts job candidates in a stronger position to negotiate for pay that is more advanced in the range since they have the information on hand, and it allows existing employees to see what their company is posting into the market.
But all that access to information may well result in a misunderstanding if it’s not put into proper context, said Justin Sun, a compensation adviser with Expedia Group.
“Unfortunately, many employees may learn about their range placement through their company’s job postings rather than through their own managers, particularly in organizations that shy away from talking about pay,” he said. “The lack of context and education can result in them making assumptions about being paid unfairly.”
Additionally, Sun said, when employees learn about higher salaries reported by new hires on platforms such as Blind and TikTok, “without clearly understanding whether their roles and qualifications are truly apples-to-apples in comparison, they may form an erroneous storyline in their head about being underpaid and start to look for opportunities elsewhere.”
‘A Big Red Flag’
So how can an organization flip the script to better invest in retaining existing employees?
When there is an open job that’s worth way more hiring from the outside than what is being paid on the inside, that’s “a big red flag that there’s a disconnect,” Martin said.
Causes of such imbalance could include:
- The experience or scarce skillset a specific candidate is bringing
- Changes in the specific market where the job is being filled, which was seen in some areas during the pandemic (e.g., an influx of people from higher-paying areas has caused pay expectations to rise)
- Changes in how the job is valued that haven’t yet been captured in the organization’s pay structure.
How organizations respond to these changes depend on which of the factors above fit the situation, Martin said.
“If it’s a matter of an individual candidate that an organization wants to invest in based on specific experiences or scarce skills, that justifies the pay differences,” he said. “If it’s a pattern, that’s different. It’s important to look more critically at the cause of the pay differences and then correct for it with a combination of changes to how pay is targeted for the role and adjustments to the employees in the role.”
Action Steps
In order to avoid losing key internal talent because of this transparency-driven trend, organizations need participation from all levels of the company, Sun said.
Leaders should regularly conduct “stay” interviews with employees to understand what drivers are affecting their decision to remain with the company and what might cause them to leave.
The meetings can be informal and include simple questions, such as what factors could make a job more satisfying and what strengths employees have that they’re not currently utilizing in their roles.
And equipping managers with ongoing education and resources that they need to speak confidently about pay is also critical to helping them build trust with team members.
“This includes articulating both the visible and non-visible factors — from skills and years of experience to internal equity — that can affect why an employee sits in one part of the range versus another,” Sun said.
“If managers don’t control the narrative around pay, employees will create their own and seek to work for an organization that can give them a greater sense of trust and assurance about the value that they deliver.”
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