Struggling to Retain Long-term Employees Due to New Hire Salary Differences – How Do You Handle This?

Hi All,

I am facing an issue with retaining old employees in my organization. Whenever I hire new employees at a higher salary than the current employees, the old employees tend to resign. Last week, I received three resignations. I am unsure how the old employees find out about the salary differences, as salary details are supposed to be confidential. I try to explain to the old employees that salaries are based on market value, and since they were hired earlier when the salary range was lower, it doesn't always resolve the issue.

In an attempt to retain them, I have offered reasonable salary hikes, but the problem persists and seems to be escalating. This situation makes me hesitant to hire new employees at higher salary levels, even though the market demands it.

I would appreciate suggestions from HR experts on how to handle this dilemma.

Regards,
Roop

Dear Roop,

You are talking about the market value. Is it not applicable for the old employees?

It's better to satisfy old employees first, as they have experience, are loyal to the company, and we can trust them. If you are forced to hire new employees, then you need to raise the salary of the older ones according to the market value.

This is cost-effective because:

- You will lose an old and experienced employee with a lower salary range and need to hire a new and less experienced one for a higher salary (as at the point of hiring, the market will rise). (Double Loss)

- You can satisfy your older employee and increase his productivity by linking the raise in salary with performance.

- You can avoid groupism among old and new employees, thus increasing teamwork and productivity.

- You can avoid recruitment costs for replacing an old employee.

Remember, they are resigning because they are getting a hike as per market value, so why can't we retain them by doing so?

WHAT DO YOU SAY???

Thank you very much, Mr. Kadam, for your suggestion. You mean to say we have to hike the salaries of the old employees as per market values. However, if the market values are too high, then, in that case, we would be in a soup. Also, employees take advantage of the same and ask for unrealistic figures. So, we too want to retain them, but we cannot give the same salaries as that of the new employee because this process will be continuous.

For example, if A is getting an increment in the month of January, and if I am hiring B in the month of April, then do I again have to hike A's salary at par with B's salary? Because this is what is happening in our company, and I really want to come out of this. Please suggest.

Thanks and Regards,
Roop

Hi,

Even we have the same problem. Our communication plays an important role. In our salary revisions every year, we inform the employees that the revised salaries are based on the market pay/compa ratio, tenure, etc. I am not sure whether you have the same policy.

Hi, I am also facing the same problem in our organization. Kindly, can anyone provide the right solution?

Regards,
SAI

Dear Mr. Roop,

As an HR personnel, you must be aware of the fact that HR involves the management of manpower. To effectively manage all of this, a study of manpower planning is required. Manpower planning involves various issues, therefore necessitating a study not only of human psychology but also a thorough understanding of industrial psychology. Solely focusing on financial aspects may not help in retaining employees or reducing manpower turnover in an organization. It is essential to pinpoint the root of the problem by conducting a scientific study of the working environment, motivational aspects, opportunities for advancement, existing motivational factors, pay packages, and employee recognition.

The query that you have raised needs to be given due attention. Let me first study whether I can find a solution to this problem.

Janardan Bhatt

Mr. Janardan Bhatt,

Thanks for your reply.

We all know here the fact that we have to do manpower planning and understand the psychology of humans. I believe that's the reason we are all in HR. However, if nothing works out, that is why I am seeking advice from all the HR experts here. Please provide a solution if you can, rather than focusing on the deficiencies in HR.

Regards,

Miss Roop.

Hello Roop. There are two parts to my answer about your problem in retaining existing workers. Firstly, what are the facts? How do you know that people are leaving for higher salaries elsewhere? Do you conduct exit interviews? Or employee satisfaction/engagement surveys? They may be leaving for any number of reasons related or unrelated to salary? So, first ensure that you are “fixing” the right problem.

Secondly, once you determine for a fact that they are leaving for higher salaries, review your work culture. Money is just one retainer. Other job factors that lead to job satisfaction and retention are:

-meaningful work

-challenging goals

-treated respectfully

-involvement in decision-making

-having friends at work

-honest and helpful performance feedback

People do not just work for money. Beyond a salary that is not too far below market expectations, these are the factors that keep people turning up for work each day. Find out from your existing employees what they like about their jobs (and do more of it) and what they don't like. Conduct individual interviews or run a survey. Look up the work of Towers Perrin. They have done a lot of work in the area of employee retention. You can also find our more about how to motivate employees at our HR web site at http://www.businessperform.com/html/...anagement.html

To finish off, some level of turnover is unavoidable and is in fact a good thing as it introduces new ways of thinking and doing to the organization. Find out what level of turnover is typical for your industry. Is yours higher or lower? If it turns out that your level of turnover is detrimental and is caused predominantly by poor salary relativities, then have a strategy for moving salaries in the right direction. First tie salary to performance with a well designed and implemented performance management system that rewards teamwork and high performance. There is no point in trying to keep existing workers that are not performing.

Secondly, have a strategy for moving existing workers incrementally to market rates (redlining) and communicate this well to all workers. With large salary discrepancies, keeping salary levels confidential takes a lot of work and only breeds an atmosphere of suspicion and distrust. By tying salaries to performance, you will be able to pay for the increasing salaries through greater efficiencies and output. The two systems (redlining and pay for performance) will need to be well-integrated. For example, pay for performance will need to be less lucrative for new employees until the salaries of existing employees catch up.

I hope this is of some help to you.

Les Allan

Business Performance P/L - HR Resources

http://www.businessperform.com