Managing Salary differentials between outside hires and internal staff

24 May

This has become quite a topic especially within companies who have historically had total remuneration that was skewed in the benefits portion relative to salary. Salaries typically tracked below the 50th percentile of the market but benefits were generous. As these companies are trying to boost performance, one of the solutions is  to bring in “high flyer’s” from outside but the salaries of these high flyer’s often are significantly more than the current internal salaries.

People internally start to resent the outside hires because there is no noticeable difference in performance but certainly very noticeable differences in salary. How do we address this inequity?

1. Companies should move to open recruitment where all jobs that are vacant are open to internal candidates and external candidates. Everyone goes through the same interview / assessment process.

2. The successful candidate who take on the job gets paid the rate for the job – whatever that rate it is. So it doesn’t matter if the external or internal candidate gets the job, the pay is exactly the same. After all if one is prepared to pay and external hire Rm14,000 per month, one must also be prepared to pay the internal person, if he is successful, the same RM14,000 even though his current pay may only be RM8,000 per month.

3. The quid-pro-quo for this is that the successful candidate must be prepared to sign the a new set terms and conditions of service irrespective of the existing terms and condition.

In doing so, the message becomes clear:

we do not discriminate

for the internal staff – of you are a high performer who can compete with external high performers, you have a chance to get market competitive salaries.

all the ill feelings towards the new hires are removed

the company gets to unwind itself out of a heavy-benefits skewed remuneration to a much more cash driven package.

A note on hiring outsiders, I was once counseled by YM Raja Aman, Former CEO of Affin Bank, who said “if you are going to bring in an outside hire, make sure the persons is head and shoulders above the rest in terms of performance. If not, it is not worth it.” Wise words from a very wise man.


Posted by on May 24, 2007 in Leadership, Transformation


5 responses to “Managing Salary differentials between outside hires and internal staff

  1. aloi

    May 25, 2007 at 3:04 pm

    I agree with you especially for companies which are already stable and the internal staffs’ years of contributions cannot be simply ignored. They played their roles in putting the company where it is now! Internal or external hires of the same level should enjoy the same benefits.

  2. whome

    May 25, 2007 at 7:55 pm

    Aloi, pass this link to as as many friends as possible who you think have a comment to make and encourage them to put in their comments. Right now people are moaning about this privately, here is a chance to do it publicly.

  3. Alsaid

    May 26, 2007 at 12:36 am

    As an employee….I would think….

    If the employers have seen a potential within the internal staffs, they would have choose the internal staffs. Why advertise for external? Waste of time and Waste of money. The reason is the employers do not have or do not see any potential within its organization.

    However, I would agree if the situation is that the employers have high performers within the organization and they want to retain these employees by giving a market competitive pay and the employers do not want to disrupt the current pay system and internal equity.

  4. whome

    May 26, 2007 at 5:40 pm

    Alsaid overlooks an important point. To be competitive companies must always be looking and benchmarking internal talent against external talent. If not how would you know how good your talent really is? Hence the need for open recruitment.

    As the saying goes, “in the land of the blind the one eyed jack is king!”

  5. m0oz-man

    May 31, 2007 at 11:40 pm

    It is very possible that for the same remuneration amount (fixed & variable total) that the level of skill, knowledge & attitude of the internal redeployment may exceed those from the external hire. This assumes that there is a pool of skilled personnel within the organization.

    Take for example, for RM10k/month, company A will only be able to fish out Mr M from company B whose real worth is probably RM7.5k. What is his motivation to move into new uncharted territory that poses an almost unquantified risk to his future. This assumes that all things being equal.

    It is highly probable that Mr M may already have a family or starting a family. This will increase his demand in order to justify his move, from psychological point of view (there was a research that quantified this from my Psych 101). As a result, he will come to expect more from the move, not just the remuneration but those higher in the Theorem of Needs.

    To make things more interesting, ADAPTABILITY is not a competency that can be easily trained & developed. It is ranked high-up there together with DRIVE & COURAGE.

    In a nutshell, to get that 10k man, it is definitely worth to look internally. You may even get a 12k man for the 10k job-size! The interesting effect from a loyal & engaged employee.


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