ASK HR: Why are new employees paid better than old ones?

Q. I see this happening a lot where I work and I hope that you can shed light on it.

Why do some companies hire an external candidate and pay them more than an internal employee who can step seamlessly into the job?

It’s good culture to promote internally and source for replacement at lower levels externally. Internal candidates have a shorter learning curve since they understand the business. They also have the support of their peers, which makes them successful in their respective roles.

The promoted employees are also motivated since they feel appreciated for their effort. It also creates career growth within the organisation and reduces turnover.

Internal candidates are also preferred because they understand the company’s corporate values and culture unlike external candidates who might take time to adopt the values.

This otherwise good practice of internal promotion is dampened by internal policies governing promotions, which sometimes disadvantages internal candidate in terms of salary negotiations, however irrespective of the salary history, it is a good HR practice to ensure that employees are not underpaid and are placed at least at the entry point of the correct grade for the role. However, sometimes, organisations have no choice but to source for external candidates when they check and find that they don’t have the skill set or experience that they require for a particular role. External candidates bring in a new pair of eyes which bring value as they are able to detect issues within the organisation and suggest solutions from their experience gained from different industries.

They also inject new blood by bringing in new ideas and perspectives into the organisation since sometimes internal candidates are stuck in their old ways of working and in most instances are in a comfort zone.

However, I have seen a few individuals who have been in an organisation for a while renewing themselves and acquiring new skills that make them an asset for the business.

Internal candidates may sometimes not have some needed new skills, therefore necessitating external recruitment.

External candidates are able to negotiate for higher pay because they may have a favourable salary history.

Worth noting is that candidates who are headhunted have a higher bargaining power since they have been approached by the organisation due to the rare skill set or experience that they have, therefore, organisations are forced to pay them a premium.

To mitigate against this disparity between internal and external candidates, organisations should ensure that both are placed in the correct salary band.