Why new hires often get paid more than existing employees

I worked with somebody who applied for the same job on another team without disclosing he already worked at the company. It turns out that’s not something they actually check for. He got an offer for about 15% more than his current salary. I think he should have just accepted that job and gone through the motions of quitting his current position and starting the new one with the same company. Mostly because I wanted to see how that played out. Instead he showed the offer to our manager and asked her to match it. That went to HR and the offer was rescinded. He left a few weeks later.

> While this probably doesn’t apply for small startups with no formal compensation structure, large companies often have strict policies around the how much of a raise they can give to any employee.

I know every company will say this, but every single one I've run across has someone who can sign off on something and change it.

"Everyone starts with 2 weeks of PTO per year." -- I've started with 3 or 4, amazingly -- actually entered into the systems, not an informal agreement to allow me to take it. I've found PTO to be the easiest thing to negotiate at the end of the hiring process for a senior+ position.

"Band 6 has a maximum salary of xxxx" -- I've been hired above that.

And these are big companies with formal rules. They all have formal rules for breaking their formal rules, and the person telling you it's a firm rule knows it.

All of this lends itself to new hires getting paid more, of course.

> In short, there’s a lot more corporate bureaucracy in giving a raise than there is to giving a higher offer to a new hire.

As an IC, it’s hard to sympathize with this argument. This is corporate bureaucracy that a company *chose* to create. How they got here is a matter of debate, but this doesn’t feel like a good justification for not rewarding loyal, high level performers.

This argument always stuck me as a weak appeal to (an ambiguous) authority.

To me, there is zero upside to staying.

The whole counteroffer thing is politically uncomfortable. Even if successful, it means one’s resume will be more monochromatic than if they had left!

If one interviews well and gets a juicy offer, the company can simply “make it back” through lower raises, and HR gets a pat on the back for leveling compensation.

I’ve also noticed that the nature of work stagnates after about 5yrs. Sure, there are little learnings after that, but it’s too easy to fall into a “sustaining” role with very little hope of real growth.

> because your company can only give 5% maximum raises every year (because it’s tied to inflation, cost of living increase, or another metric), your salary will continue to lag the market average

OK so tie it to the market average instead?

> our current team led to us being in a stagnant market position: So we need someone new

The diagnosis here is ego. The thought doesn't even cross their mind that the leadership might be the actual reason, rather than the ICs who really have very little agency.

Here is a tip about getting raises at work: ask for them. Here’s another tip for growth while staying within the same company: ask for a new/higher level role. Managers are people, not all are mind readers, and in many instances, rightfully try to stay out of your private life and may not know what you presently want career-wise. Communication is key.

At our company we implement annual ‘performance reviews’, which are really 1-1 career path discussions where we try to align a person’s desired career trajectory along company objectives. I’ve found this to be a useful exercise in gaining a better understanding of where a person is in their life and career, especially with those who don’t like to volunteer information. This is also a good venue to keep salaries up with market wages.

This whole thing is bad advice

* New hires get paid more because they are worth more to the employer. Point blank. You don't have to pay existing employees more to keep them working there. "A bird in hand is worth two in the bush" was meant to be a parable but it turns out to be rather more literal

* Never accept the counter-offer. If you have gone as far as interviewing outside, you are already checked out, and you are already branded as disloyal. It's time to make your exit! If you ask for a counter-offer, it should be a move to squeeze more out of your offers, not a real attempt to "stay" where you have already decided to leave

* Arguing about a raise is almost always a waste of time. If you are not happy with your 3% COLA, will 5% really mollify you? LOOK FOR NEW WORK

We don’t do this. If we hire someone for the same role and level as we already have on the team (ie sr devops) they either get paid the same (CoL index adj)as the existing person or we adjust the existing person up to the new salary. In the event of a fundraise, or equivalent growth of a new round size, we adjust everyone to the new comp that we’d pay an outsider to join for that role. Our opinion is that if you aren’t willing to pay an existing person the same that you’d pay an outsider with the same role & level, just let them go. It’s unkind and unnecessary string them along at a marginal advantage.

At my current firm, I found out that my co-worker, a new hire (22-year about a year out of college) was making $3k more than me, who is 10 years older than him. Spoke with my boss about this and they gave me a 30% bump. The HR reasoning was that they thought I was 'happy' with my current salary and that I had loyalty to the company because I've been with them for 5 years. A former coworker went to get an offer from another firm and tried to use that as leverage for a salary increase and ended up getting fired.

Isn't it just because new applicants have a much better bargaining chip - "I'll just start working at another place that will have me" (believable and easy for them) vs "I'll quit and start job hunting" (less believable and much more work) for existing employees.

> Hand in a competing offer

Unless (even if?) the counter-offer is significantly higher, I'd say just take the competing offer. Chances are HR will put a target on your back for being "disloyal".

The author misses a key reason, which is the winner’s curse. I’m going to take the job that offers me the most money, which means it’s likely I ended up near the top of their salary band (maybe I did well on the interview or they like me for some reason or random luck). That means I will be likely paid more than other employees at my level.

It's very easy to follow the chain of evidence from Employer: "how about $X?" "No, I need $X * 1.15 or I won't join." "OK, how about X * 1.15?" "Done."

It's much harder to follow the chain from Employee: "I'm resigning and my last day will be Y." Exit interview: "Reason for leaving?" "Professional growth." "OK, glad it wasn't pay."

That combination leads employers to believe that "compensation is obviously important, but isn't the reason that most of our employees leave". People who are leaving aren't going to tell you the entire, crystal-clear truth because there's usually nothing in it for them. Maybe if they really like their co-workers and think there's a tiny chance you'll adjust will they tell you that they're leaving over comp.

This leaves out the most obvious reason - it's better financially for the company.

If every employee was highly mobile, aware of their own value and motivated to be always on the hunt for new opportunities, then yes, companies would need to have some system for making sure new starter salaries were in line with existing employees.

But they are not. Bob is highly introverted and it took him years to make the workplace bonds he now has with his colleagues. He doesn't want to start over. At Carols previous startup, the CEO turned out to be a psychopath. She values the stable leadership at this company. Tim is an idealistic junior. He know his friends earn more but he's drunk the Koolaid and he believes in the company's mission. And Mary likes this company because it means her family can live next to her parents.

For any number of reasons, it's just not necessary for the company to pay market rate to every existing employee. Inevitably some will leave to get higher pay - they will be balanced out by new people coming in, also at market rate.

When choosing how to reward existing employees, companies have to choose a point between two extremes:

Increase salary too quickly and you leave money on the table by wasting raises on employees who would stay for less

Increase salary too slowly and you cripple your business with unsustainable turnover

This is simply a disagreement about where the “sweetspot” lies that generates the most profit for the company.

The general opinion on reddit / hacker news is that big companies choose a balance that doesn’t reward employees enough. But that’s not surprising because users on these platforms are mostly employees.

The article mentions a few reasons, but I believe the most important reason is the fact that they can reduce the average salary they pay by doing this.

A new hire will obviously seek the market average, so there is not much you can do about that. However, existing employees will not renegotiate their salaries every month, so the company will end up paying less than the market average per person. If the company raises everyone's salaries to align with the market average, they will be paying substantially more.

> Reason 2: [...] In short, there’s a lot more corporate bureaucracy in giving a raise than there is to giving a higher offer to a new hire.

The reason is that this is an accident of corporate bureaucracy?

Or is the root reason that companies consciously believe they save money if they cap raises low, regardless of the degree to which this causes regretted attrition?

It's just reality that (most) companies with no transparent in their compensation, existing employees will be put on the salary bracket that will give the company the most leverage - either by being able to dangle a good counter offer (whenever the employee is about to transfer to a different company) or simply saving on salary expense.

Corporations will always mark an employee simply as an entry on their ledger. When the time comes to get new hires on similar work level, they know they need to up their game in terms of how much they can generously pay while still maintaining the bottom line of the organization.

This problem is extra hard in my side of EU. In here, talking about one’s pay is somehow considered a big taboo so no one talks and many get underpaid. The key to the game is always negotiate higher number in the beginning or go to one of the employers using union(e.g. IG Metall) which might not have a position you want. This is usually very prevalent in startups and they can cite their size and budget and continue underpaying someone. Usually, unless your employer has a formal open scale or was part of Union tariff, knowing who was being paid what is nearly impossible.

One company I was with had a rule that former employees couldn't be re-hired for 18 months after they left. This was to stop employees getting pay rises by via the hiring process rather than the standard review process.

At another we had somebody from the helpdesk join our team, he rapidly skilled up but the company had a rule that max pay-rise was 20% annually and he was on half what everyone else was on. Problem was escalated until an exception was approved by senior manager and he got a big 1-off payrise.

As a manager, I often need to hire someone fast and will end up having to go above market to get good talent to make the move. I can’t afford to increase everyone else’s salary by the same amount. I will do it because I want to add help quickly to the team to avoid burnouts. It’s such a tough spot to be in. On top of all that, it’s hard to judge the level of experience compared to current employeed before the person gets onboarded.

Kudos to my company, who will reset comp if new employees are brought in at a higher rate

Feels like they are missing the obvious one - new employees have more leverage than existing employees.

If they are hiring that means they need that person. They also have to get them over the bump of joining. Old employees they just have to pay enough to stay. Staying involves doing nothing, switching jobs involves making decisions and taking risks. It always costs more to change something then it does to let it ride on inertia.

I'm deep in the sausage making. This reasoning is mostly spot on, though I've never heard anyone directly admit to his first reason. At the end of the day, it's not that hard for me to get a req for a new hire bumped up, but giving an existing employee a raise turns out to be almost impossible excepting a yearly cost of living adjustment that absolutely will not keep up with inflation.

Reason 6:

The only way you can get a sense of how the world truly works outside your company is by going outside your company

the truly confident teams are the ones who know you'll come back at the end of your https://en.wikipedia.org/wiki/Rumspringa , and throw you a party on your way out

In my startup experience (in the 1980s) as a recent CS graduate, there were 2 disheartening situations:

1) An intern was paid 25% more than me. The disparity was even greater, since he was paid on a hourly basis, and I was salaried, working 60 hr+ weeks. It was baffling, the intern wasn't a family relation, and had no special skills. In fact, I had to onboard him. But, for whatever reason, he got an absurdly high wage. I suppose the hiring manager (who later went on to be an early Microsoft VP) wanted to be magnanimous and help a college student, but why not also be magnanimous with your regular employees who are busting their butts?

2) Starting salaries for new grads were increasing faster than salaries for existing employees, and salaries for existing employees weren't adjusted accordingly. Existing employees got stock options on more favorable terms though (having started earlier).

In my experience, pays issues only get solved during hiring negotiations. That's it. During hiring (as author mentions) you have several people aligned to hire you at almost any cost. But after being hired - at most - you have only your manager. And for promotion you're competing against everyone, all departments.

From my perspective in my industry it is because the skills have been hard to find and the need to hire has fluctuated to different degrees. Sometimes the company is desperate, other times not.

When finding talent in a competitive market, particularly if a company find themselves desperate they often find they need to go above market averages in order to attain people.

It's not that they don't value you, it's simply the entry cost the company has found themselves needing to pay at that point in time.

If it an unfortunate reality for those already at the company, that those hired years after you may have found the position during a competitive period in the market, mixed with greater needs of the company.

Having said that, in my experience when REM has been subpar the company has performed a REM review and increased salaries. Occurred once or twice in nearly a decade.

> but by then, I felt too offended

The situation is essentially this: someone from the market just got a better deal. Maybe because of the current market situation, maybe because they are just good negotiator. How on Earth does it entitle everyone else to the pay raise? And if you think so, do you also think that when the next hire accepts an offer with less comp - everyone else should have a pay cut too?

> someone who had the same job title and the same experience

There's no such thing as the same experience. Every human being is unique, and every experience is unique too.

Anyway, getting offended without even talking to your manager, let alone just plain asking for the raise, is sooo counterproductive.

That would get resolved quickly if salaries were transparent. They are are already transparent for the employer so a functioning market would require transparency also for employees.

I applied for a company, nailed the interviews, received an offer Friday and they told me they wanted a decision by EOD Tuesday. I asked for a one day extension I could compare another offer I was receiving tomorrow, and the HR recruiter began trying to manipulate me with reasoning as to why he could not extend it. I ended up declining the offer because of how the interactions went.

One of thing that I feel and worked well for me is to keep having open conversations with your manager about pay before the comp cycle.

And make sure to tell him that your know the market rate. TBH managers also some time are not aware of the market rate. They usually compare your pay with theirs when they were at your stage.

Nowhere mentioned did it say that “if you have X experience and Y degree you get Z amount of salary”. It’s always a range. If you’re in a situation where someone with the same job title and same “pedigree” as you is making more money, ask yourself “How can I negotiate more effectively?”

Bob gets paid $40k more because Bob has a personality they like and want to groom him for leadership.

Ben doesn’t socialize and his ego is often confrontational in meetings. Ben is hurt because he’s not getting paid the same as Bob.

It’s sometimes that simple. If you want top pay, negotiate it and deliver that value. Life isn’t fair, salaries are a range, and if you decide to slack off because you aren’t getting “paid what you’re worth” - you’ll be the first one cut.

That said, new talent comes with new ideas - sometimes that’s worth more. Instead of being hurt by someone making more than you in the same position - use it as fuel to go better yourself.

If you still feel like you deserve Bob pay, talk to your manager about it. Tell them how it makes you feel without getting overly emotional about it. Let them know, that you know, and most good managers will do whatever they can to make it right by you.

To me it's the same bs as giving new customers better incentives vs. rewarding loyal existing customers.

Because often the annual % doesn't meet the rate of inflation which a new wage must be derived by. However where I work now I will be willing to give 10 years or more to. I'm loyal since they've been with me through all of the worst of things.

The piece gives a lot of superficial reasons, but they just push back the level of explanation.

Reading between the lines, the ultimate reason seems to be something like “because they can.”

There’s an easy explanation I haven’t seen anyone touch on. When you’re an existing employee, the company has more power. When you are a candidate, you have more power

I love how there are zero citations or other references, and the author doesn't provide any qualifications, yet everyone seems to believe this nonsense.

Bloomberg used to be a decent media outlet, but maybe that's chsnged. This feels like an AI-generated article (probably with some light editing).

Finally, if it was actually written by a human, way to stem future job prospects. Calling a prior company out by name and making the two salaries easy to figure out ($40k more == 40% more == $100k for the author and $140k for the coworker) are not bright moves for a burgeoning writer.

Because HR departments are full of morons. Very easy explaination but not politi

This is why you should never stay with a company for more than a year

Calling these "reasons" is a farce. "Salary raises are capped every year, and hiring budgets > budgets for raises"? "HR teams don’t realize the long-term implications of paying new employees more than tenured employees"? "Employers overvalue experience collected elsewhere"? That's not a reason — that's gross incompetence. An experienced (i.e., retained) employee is one who knows the codebase, the in-and-outs of the process, where things are, what tools do what, and what people are responsible for what. That's — at minimum — 6 months of knowledge and "training"¹ that the new hire lacks, and will require 6 months to spin up on. The real insightful stuff — deep expertise, real ideas about systemic improvements? That's another 6 months, if not a year. To let that slip away and unnecessarily need to replace it is a 6-figure error, each time it occurs.

Reason 5 is where we start being intellectually honest with ourselves: "Retaining employees is a problem very few want to solve because of inertia" … tough cookies? This is literally the job of management, and that it's become so acceptable in the corporate world for management to just abdicate it is infuriating. Yet ICs are supposed to Get Stuff Done, but that's real hard to do when products are ghost-towns because the people who built it have just moved on, because they couldn't get a raise.

Why does management think they can build literally anything while effectively firing via attrition their best people?

This has personally been the hardest part of attempting to build a career. Bloomberg doesn't get it. My father's generation got rewarded for the work they put into a job. I should ask him sometime what he thinks a "decent", nominal %'age for a raise is. But I have no doubt that he thinks it is a positive number, whereas employers appear to have different ideas.

¹in quotes because I've seen exactly 2 companies do this sort of training; the rest it was "you just try to make do on your own". One no longer does the training, and IMO, is suffering because of it, and one is a FAANG.

where do people get location-specific, accurate salary numbers? especially for places not in SF/NYC?

I always figured the explanation was much simpler than this.

As a general thing, someone meeting expectations and performing their current role should expect a nominal raise each year. Cost-of-living sort of thing.

When you hire someone new from the market, you need to figure out the market price and pay that.

There's no particular reason these two should be in lockstep besides, as the author mentions, a vague sense of inequity.

A smart company is constantly raising its hiring bar (or over time it will not survive). So by nature it’s aiming to hire better than 50% in the role/level. So by definition a new hire should be paid more than someone at the median for that role/level. This is the root reason.