Loyalty tax: 2023’s top employee retention risk

High salary offers made to new staff in 2022 are now fuelling pay equity concerns for tenured employees, who could pay a price for their loyalty, according to a recruitment firm.

Hays says that according to its last Salary Guide, 63% of 4,800 professionals surveyed said they’d benefit financially from changing jobs.

Adam Shapley, Managing Director of Hays in New Zealand, notes that skills shortages drove up salary offers for many new starters in 2022.

“For skills in highest demand, employers offered a salary increase up to CPI to secure a candidate. This exceeded average salary increases for existing staff, financially penalising loyal employees who are acutely aware of the monetary benefit of changing jobs.”

Hays also notes a small increase in the number of employers offering a sign-on bonus. According to a LinkedIn Poll the firm ran in late 2022, 8% of 18,045 professionals surveyed said they’d received a starting bonus in the past six months.

Tips for employers: Revise pay inequalities

Hays says in a statement that any pay discrepancy between new and tenured employees can impact employee engagement, productivity and turnover – unless it is quickly addressed. It suggests employers:

  • Benchmark salaries: Compare external and new starter salaries with all employees’ wages. Are they consistent? If any salaries have fallen out of sync with market trends and new starters, can you offer an immediate raise? If not, what else can you offer to bridge the gap to retain your best talent?
  • Add a buffer to the salary budget: Salary budgets are expected to increase by around 3% in 2023. If possible, factor additional salary adjustments into your budget to ensure your salaries remain fair for all to retain your top performers.
  • Be transparent: Can you publicly disclose the salary when recruiting for a new role? If not, ensure the starting salary is justifiable in the context of similar positions within the team, and share the data, formula or rationale used to calculate pay levels so employees understand your approach.
  • Consider non-financial benefits: If your budget doesn’t allow you to increase salaries for tenured staff, consider what else you can offer to reward their loyalty. For instance, can you provide them with additional annual leave, more flexibility or time for upskilling?
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