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When the new hire gets more pay than you

March 30, 2009

So, the new guy that joined last week is paid more money than you, you find out. Significantly more. And he has the same rank and title as you.

Not fair! you fume. You’ve been loyal to the company and this is how they repay you? What do you do? What can you do?

The short answer is, nothing.

Your employer has the sole discretion of paying the staff whatever it thinks its a fair price. Of course people will react to unfair compensation in their own ways but in principle, unless you have the clout, there’s really nothing much you can do about the gap. Yeah, life ain’t fair. Deal with it.

So why do employers have this habit of paying strangers more money than those who’s been loyal to them?

Well, these are the top reasons based on my experience.

  • The person was hired on contract. Contract staffers are often paid more for doing the same job than their permanent counterparts. Their tradeoff? No job security, no perks, no bonuses.
  • The market price for talent has risen. When they hired you 5 years ago, the price of a junior engineer may have been $3,000. They can’t get anyone for that price anymore so they’re forced to shell out more loot.
  • You and the new guy were hired by different persons. Or if it was the same person, he may have changed his mind about how much your function is really worth. This can happen if the business or the market had undergone tremendous change.

The point is, if this happens to you, it might not be because your boss thinks less of you. It may be because you joined the company at the “wrong” time, a time when talent was a lot cheaper. After that your annual increments simply couldn’t catch up with market rate creep.

Its natural to think, why don’t companies just peg everyone’s salary to the latest market levels once a year? The answer – that can actually make companies go belly up. The only way they can pay more is if they increased their income or raised their prices. something that could effectively put them out of business. There’s also this question. Do you adjust the salary of everybody, including the chronic underperformers? What if they never leave?

Most employees who face this dilemma will eventually come to the same conclusion. Jump ship to reset their market value to more current rates.

It might work, or it might not. Just be prepared to answer this question from your prospective employers: “We looked at your last salary slip. Can you tell us why we should pay you significantly more than your last drawn salary?”

4 Comments leave one →
  1. March 30, 2009 8:41 am

    Yeah, that life.. Life is never fair.. how come im born in this family

    Welcome to the club mate. :)

  2. March 30, 2009 9:53 am

    That is why you NEVER discuss your salary with your colleagues. If you are paid more, THEY will feel jealous and plot a prank on you. If they are paid more, YOU will feel angry about this whole unfair thing.

    Trust is, we will never be happy no matter how much we are paid. Well, some people are happy, but the majority feels that they are somehow underpaid :)

    Agree. Sometimes though, some little bird will spill the beans about what you’re earning and the story gets a life of its own. But generally yes, its hard for people to keep secrets.

  3. March 30, 2009 3:50 pm

    Life is only as fair as you see it. :P Anyway, for big companies, they do have the salary range so you’ll be adjusted according to the new rates. For smaller companies…well…it depends on how close you are with your boss. :)

    But yeah, most companies prefer to pay more to attract talents in. So that means the new joiner might get paid significantly more than you, the old guard. This is something most companies should look into, and perhaps change. Not a very good mindset. The best people are often those who come from within the organization, not from outside.

    Yeah, rewarding loyalty is something not many companies do but I do know one industry that guards salary ranges very strictly – private colleges. Its the only place I know where they’ll pay a retiring President of a large multinational a $3,000 a month salary. When I asked why, they quote policy that if you are a first timer in lecturing, you’ll come in at entry level and be paid entry level, even if as corporate celebrity you’ve earned 100 times more in your last job. Their reason is that if the other junior lecturers find out that a first-time lecturer is paid more, they’ll stage a walk out and the college will collapse.

  4. Pie Man permalink
    August 14, 2009 9:42 am

    What a**hole wrote this article? I’m sorry, but you’ve been hired at the wrong time…What an illogical way to answer this age old question. The real reason why companies bring on a new hire at a significantly higher salary than their current employees could be for several reasons. One, their current employees are incompetent and thus they need to pay people more to avoid hiring more incompetent employees. Two, management is incompetent. Let’s analyze this article assumption that market salaries have risen. In that case, the employer is betting that they can “get away” with keeping current staff at less than market rate. News flash, this is a short term term strategy and will not pay off because your current employees will leave and then the employer is left to hire all new employers at the current market pay rate, and as insult, the current employer will have to train all these new hires and deal with any gaps in talent. With that said, it seems more cost effective to actually give your employees a FAIR raise ever year and then employers wouldn’t have to retrain employees.

    With all this said, I support cutting employees that don’t hold their weight, but too often good employees feel slighted (and rightfully so) when a new hire, that they train, makes more than them.

    And a good morning to you too. :) Your points are valid, as are other points due to any number of reasons why some employees remain underpaid. I could point out all the illogical decisions employers make about their workforce and I would not finish till tomorrow.

    “News flash, this is a short term term strategy and will not pay off because your current employees will leave and then the employer is left to hire all new employers at the current market pay rate, and as insult, the current employer will have to train all these new hires and deal with any gaps in talent. With that said, it seems more cost effective to actually give your employees a FAIR raise ever year and then employers wouldn’t have to retrain employees. “

    If you had read my older blog posts, you’ll notice that’s EXACTLY why I deplored human resource practices this side of the Pacific. Not many here have an appreciation for the consequential cost of bad policy. But like me, you probably come from a country that practices things differently.

    But I will make a distinction between how a proprietor thinks and how a salaried CEO thinks on any side of the divide. Proprietors like me want to maximize returns so we look at not just income but expense leakages which can be caused by stupid workforce management practices among other things. But salaried CEOs, they have a team of people doing that for them so its not something they waste their time on. Most prefer to fix problems by increasing sales than plug expense leaks. Take a look at the financial reports of the typical mid-sized company here and you’ll see what I mean.

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