Balancing Salaries: How Can We Address Pay Gaps Between New and Long-Time Employees?

Addressing Internal Salary Disparities

I have come across a very peculiar problem that is common: in order to attract the right talent, we have to offer a good salary to new recruits that matches the industry/market rate and inflation rate. However, at the same time, old employees working in the same department have lower salaries because they joined much earlier and have grown with the company. If we are paying good salaries to new employees but not to the old employees despite their seniority and loyalty, how can we correct such internal salary disparities and retain both old and new employees? Please suggest.

Regards

Strategies for Addressing Salary Disparities in Recruitment

If you are in the recruitment business, consider paying salaries with moderate and high commissions. If you find this approach ineffective, introduce statutory components for your existing employees and initially place new hires on a probationary period before transitioning them to permanent roles with new incentives. If a resolution is still elusive, evaluate the qualifications and job roles of your employees.

Regards,
Prasad

Understanding Salary Normalization

Correction of salaries for long-term employees is called normalization, and it cannot be implemented without top management's approval.

Ways to Implement Salary Normalization

1. Compare the productivity and performance of employees doing similar work or at the same level. If their performance yields the same output, you need to address the gap by normalizing and placing them in the same grade, where the salary may differ according to the band.

2. Benchmark salaries according to market rates and figures. If the gap is too significant, normalization is necessary to adjust the figures for better employee retention.

Another reason for normalization is when an employee is hired at a lower salary, and their appraisals are due after a year. Corrections should be made mid-year.

Sometimes, there is confusion about whether normalization is an appraisal. The HR department plays a key role in helping employees understand the difference, as during normalization, there may be no salary increase, just categorizing employees into grade structures and salary bands.

This process can take months in large organizations, so be prepared to approach it appropriately to achieve the desired results.

All the best.

I agree with Archna. The sorry state of affairs is prevalent in all sectors. As suggested by Archna, rationalization has to be done at frequent intervals to bridge the gap. Unfortunately, many companies do not undertake rationalization until the old employees submit their resignation papers. Only then does the management realize the value of the old employees and agree to some pay hike in order to retain the talent pool. Remember, only the crying child gets milk, and the rest are just ignored.

Regards,
Pon