Employers may pay new hires more than current employees because they want to attract top talent, have access to a smaller pool of candidates, or want to reduce turnover in the absence of effective onboarding. Skilled employees are in higher demand than ever, and businesses attract the best talent by offering competitive salaries.

Remote work is becoming more common, with job seekers getting access to opportunities all over the world. This makes finding employees harder. Businesses must provide attractive compensation.

Finally, companies might pay new hires more to encourage them to join and stay long-term. A higher investment in new talent leads to faster integration into the company culture.

In 2024, avoiding high turnover is a persistent challenge, especially in the current market. Companies with reliable and effective onboarding processes can expect an 82% higher retention rate of new hires than their peers. According to a 2024 study, the productivity of new hires is 70% higher than current employees, and it typically increases by another 25% each following month. A fifth of all staff members who quit do so in the first month and a half. Still, 55% of companies don’t measure onboarding effectiveness. Only 35% make leadership a part of onboarding programs.

Current Employees

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Impact on current employees

The impact on current employees who are making less than new hires isn’t to be overlooked either. They will start feeling undervalued, which can hurt productivity. Staff members who feel unappreciated are likely to start putting less effort into assignments and projects, which can result in lower productivity.

Current employees might become resentful, demotivated, and ultimately more likely to quit their jobs. This affects employee retention as well as the level of expenses: lower productivity due to turnover, recruitment costs, and potentially even reputation damage. Before making new hires, it’s recommended to calculate hourly wage to determine how much current employees are getting on average. Then, the employer should consider if or how much more to offer the new hires to avoid a highly adverse impact on the current staff.  

Fair compensation is key to success: how to ensure it 

To make sure all employees are satisfied with their pay, employers should research industry standards and carry out pay audits, among other measures. Look at the compensation rates for employees in the relevant positions and stay current on any emerging trends that could impact payment expectations.

Carry out audits

Carry out regular payroll audits to identify discrepancies and take measures to eliminate them. Collect data on employee demographics to uncover potential disparities in compensation based on these factors.

Have an open conversation about pay structures

Being open with employees about remuneration can demonstrate a commitment to fairness and build trust. You help reduce misconceptions and manage expectations by explaining pay structures. Explain clearly how the company determines base pay and benefits to help your team understand the connection between their pay and their performance. They should be aware that their pay can increase based on performance and merit and the exact steps.

Make adjustments to current scales

When you make a new hire who is paid more than your current employees, you might need to make adjustments to your pay scales. Give loyal team members some motivation to stay with the company in monetary form if your budget allows it. This can be a one-time bonus or a small salary raise.

Address concerns and avoid bias

Companies should create channels for open communication about payment. These allow employees to give feedback or express concerns regarding pay structure. 

Unconscious biases are present in any organization, and they influence decisions related to compensation and promotions. Implement objective systems to assess performance and determine compensation. If possible, company managers should undergo diversity training to help them identify biases and make more objective decisions about compensation.

Final thoughts 

The Great Resignation is over: voluntary turnover was 36% in 2021, 25% in 2022, and 21% in 2023. However, it is worth noting that workers are still unsatisfied with their employment experiences, mainly because their salaries are not keeping up with inflation. While it’s legal to offer newcomers higher salaries, addressing it through pay adjustments, transparent communication, and opportunities for advancement will make the work environment more harmonious.