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Wage compression widens the gap between new and existing employees

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Entrepreneurs have known the value of loyalty for a long time. From customers collecting stamps for retail loyalty programs, to Air Miles, coupons, plastic cards and mobile apps, the mechanics have changed, but the rationale remains: repeat business is essential for growth in almost all businesses.

Likewise, companies also know that employee loyalty will drive a company forward. From driving positive customer experiences to improved productivity and production, the benefits of employee loyalty are also well documented. So why did a recent social media post about rewarding existing employees caused such a stir?

the LinkedIn after in question was posted by Robert Sweeney, CEO at Facet and former Netflix employee, who detailed how he only worked at Netflix for a few months when the company hired someone new in the same position, but at a higher salary.

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Netflix increased its salary to match, an exercise Sweeney performed at Facet. He wrote:

“If you have to pay more to hire new employees, that means the market has gone up and your current employees need a raise. Don’t punish loyal employees for staying with you by leaving their rewards with the market.”

Seems pretty good, right? Well, the reactions were mixed to say the least. While loyal employees commented in agreement and praise – with one eye on the rising cost of living. Others opposed the practice, saying that in this difficult hiring market, companies must bid above market rates to attract talent and that, when it stabilizes, they will be at a competitive disadvantage over those who have not hired during this time.

holding a grudge

The reality is, it is demotivating loyal employees to see a newbie blow in with a higher salary, especially if it’s in a role with less responsibility. That 3% annual salary increase that loyal employees get — if they’re lucky — is hard-earned. Resentment can fester in this environment and grow rapidly.

That same Jabra report also says that since the start of the pandemic, 48% of all workers surveyed have considered changing jobs. In a short year, we’ve moved from The Great Resignation to the Great Layoff, with 17,000 technical workers laid off in May 2022 alone. Meanwhile, a Microsoft questionnaire of more than 30,000 workers worldwide found earlier this year that four in 10 would likely consider changing jobs by 2022.

For those companies that hire people, especially in remote positions, there is a lot of strong talent available right now. And at the same time, between inflation, freezing investment as interest rates rise, and anticipating an impending recession, many companies are acting cautiously.

The result of these elements is what labor economists call “salary compression.” As companies tighten the belt on current salaries, they are also paying higher salaries to attract new talent, widening the gap between the two.

On paper, your salary is meant to match your experience, results and skills, but that’s not always the case. Job seekers have always known that a new recruit is the most powerful position to negotiate a better salary. If you’ve been demotivated by salary compression in your workplace and feel undervalued, it may be time for a change.

List and prioritize a new role and consider: flexible working, salary, title, benefits, management, progress, hours, company mission, and company culture. Then head over to the TNW House of Talent Job Board to see what’s out there. You can find good starting salaries at many organizations. We’ve got three to look at below.

Cloakroom Collective

The premium global online marketplace for pre-loved fashion is hiring for a number of positions in Paris and Tourcoing. Vestiaire Collective has 650 employees and offices around the world. The company is now hiring a Senior Global Affiliate / Partnerships Manager (F/M/D) to manage its global affiliate program and direct acquisition partnerships and nano-influencers. The job specification lists significant investments in learning and growth, in addition to a competitive compensation and benefits package.

eBay

A brand that needs little introduction, eBay is recruiting jobs in the US and in London, Amsterdam and Paris. This Senior Java Software Engineer role is suitable for an experienced engineer seeking a competitive salary and generous benefits. eBay is based in London and also offers work from home support. The successful candidate will join eBay’s Shipping agile teams, working with Java/Spring across the eBay stack, including internal and external APIs, systems, services and tools.

UiPath

As a leader in robotic process automation, UiPath helps companies reduce costs and operator errors by automating repetitive work. It is looking for a Product Manager – Task Mining for its Eindhoven office to define a vision and strategy for products in the Task Mining space. This role includes outlining and developing a product roadmap and developing new features by working closely with internal design and data science teams.

Do you want to work with the biggest and most innovative brands in the industry? Visit the House of Talent Job Board now and bookmark the link for regular check-ins

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