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Compensation and Internal Equity


Everything your organization does for recruitment should also be done for retention. 


With the current state of the labor market, organizations across all industries are running into this situation: an external person is hired into the organization and offered higher compensation than current employees. Somewhat surprisingly, many companies are struggling with what to do in this situation, yet the solution is clear: pay your current employees what they’re worth. 

Across the country, loyal employees are often getting the short end of the stick. Nearly a third of professionals who left their organization during the pandemic are currently making over 30% more than they did in their last job. Even if you’re at a company that treats you well, you may still leave when another company can offer you that much of an increase. 


What is Pay Equity?

Pay equity is the concept of compensating employees in similar roles with similar performance equally. This doesn’t just pertain to equity across gender, age, race, etc. It also pertains to equity between current and new employees. Employers must consider the expectations of the job, an employee’s qualifications and performance, and the organization’s budget capabilities when reviewing compensation for both new and existing employees. 

Employers who have equitable pay programs are more likely to see increased morale and productivity, and a lower rate of turnover.

For example, you hire a new front desk receptionist at $20/hr, and your current front desk receptionists are at $15/hr. Ideally, you want to give your current front desk receptionists a raise to $20/hr. 


Understanding the Current Reality 

The practice of pay equity has become more of a challenge during the “Great Resignation.” Employers are faced with a labor market that has more open positions than qualified candidates. This leaves them more inclined to meet salary demands from new candidates that they are recruiting. 

Why is this important to point out? Because, what is being done for recruitment isn’t necessarily being done for retention. While new employees are receiving market value compensation, internal employee’s salaries also should be increased to meet that value. 

When a loyal employee discovers that they’re being compensated less than a new employee hired in a similar role, it’s unlikely that they’ll react well. If you invest as much in retaining your current employees as you do in new ones, you will benefit in the long run. 

This is why it’s also crucial to ensure that you are hiring, and retaining, only high-value team members. Since compensation is increasing and team members are more expensive, ensuring they can perform to the capacity your company needs is more important than ever before. You simply can’t afford to hire or keep mediocre talent.  In a department where you once budgeted for 10 mediocre employees, maybe you really only need 5 high functioning, higher paid individuals. 


Where Do We Go From Here?

If losing your most experienced employees when hiring new ones sounds like a nightmare to you, now is the time to take action. When it is brought to your attention that the market value amount for a certain position has increased, do something about it. Don’t just hire a new employee at the increased market value and hope you get away with it. 


When you compare the cost of a pay increase to the cost of replacing a seasoned employee in this job market, giving salary increases for retention seems like a bargain.