Ask HN: Why do companies pay new hires more than long time employees?

[doktorhladnjak]

It's cheapest overall for an employer to pay market rate for new hires and give existing employees small, regular raises.

If you need to hire someone, you're going to have to pay market rate for a particular hire. You can pay less for less skill or in certain locations. You can try to offer below market and wait for a candidate with few options to accept. But you can't really get around this. If market pay is going up, you're going to have to pay more than for existing employees. If pay is going down, you can pay less than existing employees. Usually it is the former, but there are absolutely companies right now in the declining wage situation where they are paying new hires less.

As for existing employees, most will complain if they are being paid less than new hires, but only some fraction leave. Usually bringing everyone up to the new hire pay level costs way more than the cost from backfilling positions where someone left for more pay or to give counter offers for those you want to keep from leaving.

[not_your_vase]

If they don't, the new hire goes to another company that does.

Here is another, but related question: why don't long time employees look for a better paying opportunity?

[proc0]

Looking for a job is another part time job, at least for engineers who need to take technical tests.

[HenryBemis]

> why don't long time employees look for a better paying opportunity?

comfort, convenience, they know all the shortcuts, they know the tribe, they know the people who that will help them and the people to avoid. They pick up the phone and get the thing they are looking for in 5mins, no begging required. A learning curve can be a b*tch, and folks that have been sitting in the same chair for 20y got nothing new to learn. If they are smart they are doing 100% of their tasks at 50% of the time, so they nap at home, or take really long coffee breaks in the office. Work is close to home (probably) and getting another job that is 30mins driving more (meaning 1h/day, 5h/week) ain't worth the extra $500 per month.

Also, 'better the devil you know'.

[janstice]

Why not? Being the new guy/gal sucks - all the institutional knowledge that you have accumulated means that you’re much more efficient that when you move to a new place, plus you know everyone and you’ve got relationships and likely friendships that you’ve cemented over the years. When you move to a new place, you suck until you’ve worked how things work - you need to hope the excitement of a new job carries you while you find your feet.

[muzani]

This is the answer here.

Market rate isn't what the average person is being paid. It's the amount that both parties accept.

Pay = (cost of change) + (value of work)

For new hires, the cost is high (interviews, effort) so the pay needs to be high. For long time employees, the cost of staying is negative (friends, familiar/working code, devil you know) and the cost of moving is positive, and this gap increases with tenure.

[bruce511]

There are a number of reasons why a job in the hand might be worth two in the bush. Each situation is different though so ymmv.

Firstly there's more to a job than just pay. Some places are better to work at than others. Perhaps it's team dynamics, geographic location, remote or office, good or bad office etc.

Some financial perks improve with length of tenure.

Long-termers tend to have more job security than newbies. First in, first out when positions are cut.

Fewer, or more, responsibilities. Things like being on-call over weekends.

Seniority often comes with non-financial perks that aren't monetary, but make life better. More flexible working conditions. Better parking. Work from home, and so on.

None of which stops people discussing pay with their manager. Which is a Lot easier to do than switching jobs.

[coolThingsFirst]

Because it's a red flag if you leave before 1 year. So if you figure out in your 6th month that you were were getting underpaid well tough luck because you have endure 6 more of the same crap or your next job will take a lot longer to find especially in this market.

[ravenstine]

> Here is another, but related question: why don't long time employees look for a better paying opportunity?

The devil you know is often better than the devil you don't know.

Why risk ending up with a bad employer for more pay if you can already coast at an OK employer for good enough pay?

I see it much like that Treehouse Of Horror episode of The Simpsons where Homer time travels to the past and finally comes back to the present to discover that everything is the same except everyone now has a long tongue they eat with; after all the things he went through earlier, his response is "Eh... close enough."

[rufus_foreman]

For the same reason insurance companies charge existing customers more than new ones. To take advantage of switching costs.

[altdataseller]

I answered this question here last month: https://bloomberry.com/why-new-hires-often-get-paid-more-tha...

Basically it comes down to a few reasons:

1) Hiring budgets are always > than budgets for raises

2) HR and recruiters are incentivized to hire new people rather than retain current ones

3) Employers overvalue experiences obtained elsewhere

4) Nobody really wants to solve the problem of retention because it's a deep-rooted issue with no easy fixes (unlike paying someone new a lot of money)

[badrabbit]

New hire budget is bigger because they're competing for talent. For existing employees, since most don't leave jobs for better pay, they only need to approximate industry average pay.

Switching jobs is stressful and you can only do that so often before being flagged as a job hopper. One company declined to interview me because I switched jobs in less than 3 years(2.5). Plus, if the pay is decent, why rock the boat? The competition may have worse work environments, bosses or colleagues.

This is why unions existed.

[stop50]

In my company the new hires are usually the worst payed people. We have a scheme that has a base pay and if you fullfill the requirements, additional money is added to the base pay each month. It used loyalty with the company and certifications to determine the addition to the base pay.

[x86x87]

Lol. Loyalty!

Not sure if you are serious, but in case you are: your company is very very special.

The disconnect comes between what market rate is and what actual pay is. If you want to hire people you must offer competitive pay.

[thiago_fm]

I've been seeing the entire opposite. New hires in this shitty economy are getting really smaller offers than they would 2-3 years ago.

One very clear sign of this is if you are in the management side (I am), the amount of REALLY IMPRESSIVE talent that is looking for a new job at the moment is just bonkers.

Recruitment agencies business for developers is a dying kind of business at the moment, companies can directly access top-notch talent by sorting through CVs, running tests etc (typical company recruiting process).

[lulznews]

Most companies have very low IQ. Don’t expect any strong reasoning from them.

[rufus_foreman]

>> Most companies have very low IQ

Go get rich then.

[rndaom]

Because they are competing with each other at current market rates.

But you can make this work for you. Give yourself a raise every 2 years or so.

[sumeruchat]

This is like saying why are potatoes more expensive than tomatoes. Well because the market decided so

[qgin]

That's true, but the question is why is the market doing that? What is it about the new hire that is worth more?

[GrumpySloth]

Except tomatoes are more than 4 times as expensive as potatoes. :D

[yieldcrv]

I am very well versed in how to react to this but I agree that we shouldn’t have to react to this

[mikhael28]

Because long time employees don’t ask for raises, or more accurately, demand them.

[aristofun]

Because they can.

What else possible answer did you expect, i sincerely wonder?

[firecall]

Do they?

Any evidence or data to back this up?

Anecdotally, I can say that when I was hiring devs in a large AU Corporate, this wasn’t the case :-)

[wetpaws]

Cause they can

[qgin]

They can do a lot of things, but they're consistently doing this. The question is why?