Bill Wednieski 248-343-6027

Salary compression for loyal employees

A notable personal observation and trend has emerged over the past year. Record inflation is not news. Candidates switching jobs and locking up generous compensation offers is likewise not news. What feels like news to me (and what is not talked about enough, by the way) is the loyal hiring managers hiring all these candidates who are left feeling like chopped liver. The common scenario is this: a key position opens up and is engaged to fill. Cost to secure a new candidate is 110-120% of expectations to secure a desirable candidate. That gap between candidate and manager is now skinnier, and frequently a little too close for the personal comfort of the hiring manager. The divide between lesser experienced candidates, and even rookies vs. veterans is, more often than not, out of sync these days.

As recruiters constantly working searches in this still red-hot market, or really any market, we always strive to build rapport with our clients and their hiring managers. According to LaborIQ the cost of securing new candidates in many in-demand occupations across finance, engineering and other specialty fields well exceeds 10% and frequently 20% year-over-year benchmark figures. During the past two years of “The Great Resignation,” the loyal longtime employees that hung in there are now paid below market in return for their loyalty. I don’t think this was intended – it just sort of happened. Annual merit increases are simply not keeping up because inflation is candidly so damn high and is paired with a low supply of qualified candidates.

It’s getting too hard to hide that new hires are commanding these higher figures. It’s not a bluff by the candidate demanding these salaries either. Fact: our firm had two offers turned down in just the past two weeks. So, what is a business to do? Just give everybody a raise to match these runaway salaries? That’s not realistic. The reality is that with the cost to secure the new guy, the less the employer has to pay the loyal veteran. Another fact: post Covid-19, CPA firms are doling out semi-annual raises, and stay-on or retention bonuses on top of annual bonuses. This is a once in 40-year time to be a young CPA.

The technical term for what’s happening has a name: salary compression. I define salary compression as the narrowing pay gap between experienced and lesser experienced candidates. In extreme cases, salary inversions are happening where the subordinate is paid more than the hiring manager simply out of desperation. I’ve seen firsthand more than one example where my client had to give a raise to a hiring manager to proactively avoid the perception of salary compression while reducing the flight risk of the hiring manager.

If you’re an employer trying to hide salary compression then you’re on a fool’s errand. As much as we don’t like it employees are free talk to one another, and it is too easy to use that little smartphone everyone has in their pocket to reference Google, Glassdoor, or, and Blind. Personally, I would suggest a bonus instead if you’re trying to keep fixed costs from getting out of control.

My mom used to say, “he who laughs last laughs loudest.” Maybe… until a recession comes. I offer caution to all the newest employees that took advantage of The Great Resignation for generous salaries in their new positions. My mom also used to say “pigs get fat and hogs get slaughtered.” Big salaries do make expensive employees vulnerable to layoffs, if and when the economy dictates businesses must reduce costs. As for the loyal employees that stayed, let’s hope you are rewarded with job stability and safety.

Recruiter Bill Wednieski is the Managing Director for The Headhunters. Learn more here.

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