When New Hires Get Paid More, Top Performers Resign First | Harvard Business Review

Talent Development

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Fair pay continues to rise in importance as a topic of interest for both employees and HR leaders. According to Mercer’s 2024 Global Talent Trends Report (see p. 28), employees ranked fair pay as the second most important of 20 factors influencing their decision to stay with their organization; similarly, HR leaders ranked fair pay as the second most influential factor. With pay transparency regulations in many states and localities requiring employers to disclose wage scale or salary range in job advertisements, disparities in pay become more evident, presenting several implications for organizations. This article explores one of those implications by examining how likely employees were to resign after hiring a higher-paid coworker, as well as the extent to which getting a pay raise might reduce their chances of resigning. One finding is that: employees whose pay was increased soon after the addition of a higher-paid coworker tended to stay in their jobs much longer, whereas those who had to wait for a raise were more likely to quit; high performers were disproportionately represented among resigning employees. The authors present strategies for mitigating these risks, aiming to provide both new hires and existing employees fair pay. As a bonus, I am resharing this 36-page paper by ADP Research Institute on pay transparency. Page 10 shows how workers’ perception of pay equity influences their willingness to leave their organization.