New hires vs employees : 3 salary situations and how to handle them

New hires vs employees 3 salary situations and how to handle them

Imagine the scene : you are sitting at your desk, happily going along your normal HR activities, when an employee (let’s call him John) enters your office and expresses some concern over his compensation. More specifically, he says, he knows that some of his former colleagues at his previous employer, “who were earning the exact same salary as me 2 years ago” when he joined your company, are now being offered jobs in other departments to join your company at 15 or 20% higher than his own salary, for the same grade. John is looking for you to consider this alleged internal equity issue and proceed to a readjustment of his own package, in the name of fairness. So what do you do ?

Well obviously the first step to take is to conduct your investigation and gather as much data as possible.

  • About your employee : his current grade and salary, pay evolution since hired, performance ratings, as well as his resume to check his previous role.
  • About your current internal equity : salaries of other employees in the same grade as John, and in similar roles if the population can be narrowed down and still make sense. For example, if John is grade 17 and works in Marketing, check all employees in grade 17 (average / minimum /maximum actual current salaries, count of employees, average tenure). This grade 17 may have people from Finance, Marketing, HR, and other departments. So perform the same analysis a second time, with only the Marketing employees in grade 17 to get an even more targeted view of internal pay distribution.
  • About the candidate : let’s call him Emad. Check Emad’s current salary and job title, and the package offered to him. How much of salary differential, if any, are you offering to him compared to his current employer ? And what is the difference with John’s current package ?What is the current market rate for the job ? Are you offering Emad more, less or at-market compensation as per today’s market ?

Once you have all this information, you have a much clearer view of the situation and you can therefore understand whether John’s claims have some ground, and whether you should take action or not.

Here are 3 of the most probable situations you may be facing.

I’ll first make the assumption that John is paid appropriately compared to your pay philosophy, and in line with others internally.

  • Case 1 : Emad will be offered a similar package. So the claim is based on incorrect information. Inform John about it and don’t comment more than that.
  • Case 2 : Emad is offered a higher package yet still in line with your pay philosophy. During these past 2 years, Emad had an internal promotion (you know because his title and responsabilities, as per his resume, are higher than John’s were 2 years ago). He also worked on projects that are fully aligned with your current skills requirements, including having some skills that no-one possesses internally yet.  Explain to John that Emad had a different career evolution at the previous employer, and that, like any other organisation, you have to take into account the existing profile and compensation of candidates, as well as your own pay policy, budget etc when offering a job. Also have a conversation on the concept of pay fairness and equity – it is not the same as equality. Especially when you work in a white-collar environment, you have salary ranges because individual performance, experience, skills etc influence how much each person gets. Yet within the range, this is what your company considers acceptable.

These two cases are based on the assumption that John is paid in line with your internal compensation approach. Let’s now consider that John may be paid significantly less than most others in the same grade.

  • Case 3 : Emad is offered 15% more than John, and is in line with the market and your internal team. Your main issue here is John.  You have to consider two things :

1 – Why is John paid less than his peers ? Is it because of poor performance ? Was he hired at a lower salary than his peers because two years ago, the crisis was impacting salaries down and no-one was hired since ? Or on the contrary, was he the only one hired 2 years ago, and peers joined after him while there was a talent shortage on the market and therefore they were all hired at higher pay than he was ? Is he the only one with 2 years on the job while the others have 5/6 years average on the job ?
2 – Do you want to do something about it ? And if so, when ?  Will you act immediately or wait to give John an adjustment increase at the next salary review cycle ?

As a conclusion, once you have gathered your internal and external facts, and made a decision about whether you will change John’s salary or not, you should always come back to your employee with an explanation about the situation (while protecting the privacy of Emad – because you don’t know if Emad really spoke with John) and the rationale for your decision. Always protect the privacy of Emad – because you don’t know if Emad really spoke with John. And never ever  tell John the package you pay/offer to Emad. You have to respect pay confidentiality, but this does not prevent you from having a conversation on the principles of pay though….

Related posts :

The best order in which to apply salary increases in any organisation

7 steps to compensation programme design – the basics

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  1. John Douglass says

    I admit I read this quickly and may have missed something. It appears to me you touched on just about everything but the employee’s job and how it was assigned to grade 17, versus the other jobs and how they were assigned. Employees believe they have a grade….or are graded. In almost every case this is wrong…..and to say John is grade 17 is maybe the worst thing you can do. Whether you are working one-on-one or with a group, it all about how jobs are graded when the discussion is about differences in salary. Then you can discuss how salaries move through ranges at different speeds, etc.

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