Internal Equity – The double edged sword

Once upon a time we lived in the wild west of salary negotiation where many companies had no real constraints placed upon what they could do for a potential employee, but about a decade ago most companies began to put in place internal equity processes so that they could control rising costs, leverage pay (get the most “bang for the buck”), and to insure that no discriminatory hiring practices were in place (nobody likes a lawsuit).

Now I agree that companies need to have these types of processes in place. However, what Internal Equity has evolved into is much more than that, and in many cases it is causing companies to lose out on top talent in the IT world. After the boom & bust cycle that that was 1995-2005 we’ve discussed with our candidates that they needed to view their salary and compensation like the price of a stock and that depending on the supply and demand of their particular skills it can go up or down dramatically.

Unfortunately companies Internal Equity system do not allow for that type of rapid fluctuation since they base a tremendous portion of what they should pay a newcomer on what they currently pay their existing staff. This is done mostly because they believe it to be fair, but also any “current data” they do use on salaries in their space (tech skill, location, Cost of Living, etc.) is inherently old when they receive it. So as market salaries ramp quickly for skills in short supply these organizations tend to lose out when other companies can make quicker changes to their salary structure.

So do yourself a favor since Human Resource won’t be able to change too much get out in front of the topic with your client and hopefully once they recognize the difficulties of their hiring process they take some guidance from their recruiters (internal &/or external) and they’ll be better equipped to make an offer that is competitive, and may still keep their salary structure in order.

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