Should You Offer New Hires Premium Salaries?

New hires are in demand. The Great Resignation has taken hold, and one result has been a tight labor market that favors workers more than it has in decades. Companies are offering new hires signing bonuses that stretch into the 6-figure mark in order to net talent in the current labor market.

Offering new hires high salaries and significant cash bonuses have become par for the course these days. But what about your most loyal workers who have been with you for decades? Those who are now earning significantly less than their newest coworkers?

How can companies strike the right balance? This is particularly challenging considering that a salary is supposed to be a reflection of some combination of a person’s:

• Job type
• Skill
• Years of experience

This is an unenviable situation in which many businesses, big and small, have found themselves in 2022.

Understanding underlying pay discrepancy issues

First of all, not all new hires are the same. High-level executives in this country get paid much, much more than the essential workers below them. So, you have to consider the type of hires you’re making and whose salary you’re comparing their earnings to in order to see if you have this problem in the first place.

The problem arises when the current situation bucks the standard that those with more seniority generally earn more than those with less. This is precisely the situation that the Great Resignation and the pandemic have created. But that doesn’t mean these are the only reasons.

Perhaps the problem is actually an internal one. Does your company give regular raises or salary increases? Has there been a change in leadership that has led to stagnant salaries? If these things (or others like it) are happening, the chances are the Great Resignation has simply compounded a problem that’s been there all along.

In this instance, the problem isn’t about new hire salary as much as it’s about remedying poor salary increase practices of the past.

One more thing to consider: It’s not necessarily a bad thing if an employee is earning more than their manager. A manager could be good at managing people but not great at the specialized skill set of the people they are managing. Remember that not every situation is the same. The goal is to find out what’s happening at your specific business and go from there.

Know that employees will talk about their earnings

Despite company policies galore, people simply will talk about what they earn at some point. It might take a while for new hires to get cozy enough with some of their co-workers to have these conversations. But know that they almost certainly will happen.

This means that relying on policies that forbid such conversations is a losing strategy. As new hires make more money than existing employees, be ready to field many discussions about this. Prepare yourself ahead of time for how you’ll handle these conversations with different employees, managers, and teams. (Hint: honesty, transparency, and empathy are your best approach.)

Make sure to avoid a lawsuit

Even if you’re just responding to a tight labor market, if you’re hiring a ton of white men at premium salaries and adding them to your existing workforce that’s full of women, it’s easy to see how you could end up in the middle of a discrimination lawsuit.

There’s a reason why diversity, equity, and inclusion matter. Make sure to diversify new hires to whom you’re awarding premium salaries. Be sure to keep addressing income inequality and the gender pay gap — today, and always.

Just because the market is tight doesn’t mean that you need to drop your DEI initiatives.

Be honest and transparent about hiring

There’s something to be said for being open and honest about this issue with your employees. They’re all adults, after all.

Explain the current market situation and note that the company might have to offer higher than usual salaries at the moment, but (ideally!) that there’s a plan to adjust everyone’s pay based on performance and contribution over time. Just because you hired someone at a given rate doesn’t necessarily mean that they need to get the same schedule of raises as people who have been working for you for decades.

Consider other benefits you can offer existing employees

There’s no way around it: People will be angry that others are earning more than they are right out of the gate. Try remedying this proactively by offering current and senior employees other benefits that can help smooth things over.

Perhaps everyone who has been with the company more than a year gets additional PTO days. Maybe you offer them other benefits, like a home office stipend or a wellness stipend that can be spent on gyms or yoga classes and the like. Perhaps you give them a stipend for their cellphone or some additional commuting benefits.

There’s no easy answer or one-size-fits-all solution

At the end of the day, there’s more to equity than just pay. While salary is certainly a core element when your goal is equity among your employees while meeting the demands of this crazy labor market, you’re sure to be on the right path. For your existing staff and your new hires.