News: Top talent resign first when new hires get paid more: Study

Talent Management

Top talent resign first when new hires get paid more: Study

The study also revealed that employees were over twice as likely to resign if their pay wasn't adjusted within a year.
Top talent resign first when new hires get paid more: Study

In order to attract top talent, employers frequently offer higher salaries to new hires compared to existing employees in similar positions. 

According to Harvard Business Review, employees who received a pay raise shortly after the arrival of a higher-paid colleague tended to remain with their companies significantly longer. 

Conversely, those who experienced delays in pay adjustments were more inclined to resign. When pay adjustments were implemented within a month of the new hire's arrival, existing employees stayed on for an average of two and a half additional years. 

In contrast, when adjustments took six months, the average tenure dropped to one and a half years. If pay increases were delayed for an entire year, employees resigned, on average, just 13 months after the new hire joined. 

This suggests that employees were more than twice as likely to resign if their pay was not adjusted within a year. In a subsequent analysis using, the study found that resigning employees were disproportionately high performers. 

Typically, about one in four resigning employees are high performers, but after the addition of a higher-paid new hire, this ratio increased to more than one in three. This indicates that hiring new employees at higher salaries not only leads to higher turnover rates overall but also specifically increases attrition among employees who contribute the most to their organisations. 

Several factors contribute to this effect. Firstly, when high performers feel undervalued, their motivation diminishes, leading to reduced job satisfaction and a greater likelihood of seeking opportunities elsewhere. 

Additionally, this dissatisfaction can spread among other team members, further impacting motivation levels. Another factor is the "sucker effect," where employees fear being taken advantage of if they perceive their efforts as under-rewarded compared to their peers. 

This concern can arise even among employees who are not actively seeking new employment but become aware of market shifts when a higher-paid new hire joins the team. Harvard Business Review suggests that even in organisations with limited pay transparency, the mere knowledge of new hires joining at higher salaries can create concerns among existing employees about fair compensation. 

This realisation prompts individuals to reassess their job satisfaction and consider their options. Finally, sustained pay disparities erode trust within teams and organisations. When employees perceive unfair treatment and inequitable pay practices, their morale and commitment suffer, leading them to explore alternative opportunities. 

To address these issues, organisations must first raise awareness about the impact of pay inequity across all levels. This involves providing training for HR teams, managers, executives, and other stakeholders to identify and address disparities effectively. 

Regular pay equity audits are essential to ensure accountability and transparency, with a focus on explaining any disparities and taking prompt action to address them. Investing in agile processes and tools is crucial for rapid response and adjustment to pay disparities, ultimately ensuring fair treatment for both new hires and existing employees, particularly top performers. 

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Topics: Talent Management, #HRTech, #HRCommunity

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