Why Are Outsiders Paid More?

Have you heard this one?  “The Company would rather pay more to an outsider than give one of us insiders a decent promotion.”

The complaint is that, when considering two individuals for the same job someone on the inside oftentimes will be offered a lower salary than if the company went outside to hire a stranger.  To compound the insult, it is not unusual for managers to ask insiders to train and orient the new ‘wunderkinde” in how the company operates.

Aggrieved employees feel that an insider already knows the company, the people, the products / services as well as the policies / procedures.  That knowledge and experience is an advantage, they say, shortening any learning curve and cultural orientation.  Taking on the role and responsibilities of the new position and not being paid the “going rate” seems unfair – actually a penalty for being an insider.  It’s as if the company realizes they don’t have to pay as much for an existing employee, that the time spent in the company somehow reduces their market value and limits a willingness to pay a competitive wage.

Prevailing practice is that when a company looks to the outside recruiters will be instructed to search for someone who already meets the qualifications of the job; an experienced candidate who has already performed the job, whose only learning curve would be a brief acclimation to new policies and procedures.  Outsiders are considered to be free of “baggage”: no biases, preconceived notions or social network, and are thus considered more reliable as agents for change within the company.

Note: if someone already has performed the subject role the chances are good they are already being paid about the competitive rate.  If that is the case then the company would be forced to pay a premium to attract such qualified talent.  They would likely have to pay above the going rate (or above the midpoint in some companies).

So, what’s an insider to do?  How can you best position yourself for the inevitable comparison with an outside candidate?  

Compare yourself against the description or requirements of the new position and try to be as honest as you can with your internal assessment.  Can you do this job from Day 1, or how much of a learning curve would you need?  Are there aspects of the new responsibilities that you haven’t experienced before?  The results of this assessment will give you an opening for your talk with HR.  They in turn will push the “we’re giving you an opportunity” angle, and you both know they could always go outside for a better qualified candidate.  In fact, an advantage you have is that you are likely a cheaper choice for the Company.  So don’t push the pay issue too hard, or you risk throwing the baby out with the bathwater.

Here’s a checklist for you to remember when you’re doing your self-assessment: 

1) Are you already familiar with company policies, procedures and personnel? 

2) In your present role have you already demonstrated an ability with the technical side of the new position? 

3) An advantage: internal promotions look and sound good to other employees, and managers know this

4) Can you develop an inside track with the manager (the all-important “fit)

5) You are likely a cheaper option than hiring from the outside.  Use that fact to your advantage.

Don’t be afraid of compromise.  Your plan should be to gain visibility for your performance and value, though it may take some time for a positive result to work its way through the bureaucracy.  No matter what you gain from your initial conversation (short of complete victory) suggest a follow-up salary review in three months.  Managers know they’d have a better chance of getting an adjustment approved after the initial hire / promotion, when it’s more likely an exception would be approved.  A manager who agrees to that review (and who will be thankful to avoid a contentious meeting) is already halfway to approving an adjustment down the road.

By being aware of the restrictions your managers are operating under you may be able to help them help you.  Do not beat yourself against the wall of bureaucracy, but plan for your next step; use your insiders knowledge to your eventual advantage.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  With over 30 years Rewards experience Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a brood of cats. 

Image: Creative Commons photo by Photos8.com

Comments

[JD]

Insiders should always welcome with open arms the outside hire who is paid more. It gives them excellent leverage for asking for a raise. Before that person arrived, they might not have had a good reason to ask for one and it increases the going rate in the company for their job.

[Chuck Csizmar]

The downside of that approach is that most managers are coached in how to deal with employees asking for off-cycle raises. A common response would be that they won't talk about other employees, as it's no one's business. Thus the employee asking for the raise is put on the defensive from the get-go. And if the only reason they have to ask for a raise is that "Bob gets paid more", the argument is weak.

Does the complainant really know the new hire's background and experience, or just that the money is more? Often times people make the wrong assumptions, based on partial information.

What usually happens, whether ancillary raises are granted or not, is that morale and team effort in the department suffers when an outside hire making more money is brought in.

[Vicki K]

I think a key point is missing in this discussion: it's not about experience, knowing the company or not knowing the company, or even being "rewarded" for being a dedicated employee for X number of years. For an insider OR an outsider, it's all about ACCOMPLISHMENTS. What have you done to demonstrate that you have DIRECTLY contributed to the productivity, profitability, efficiency or effectiveness of the company? If you can't draw a direct line to that, you have a weak case.

[Wally Bock]

Congratulations! This post was selected as one of the five best independent business blog posts of the week in my Three Star Leadership Midweek Review of the Business Blogs.

http://blog.threestarleadership.com/2010/05/05/5510-a-midweek-look-at-the-independent-business-blogs.aspx

Wally Bock

[E. James (Jim) Brennan]

Old story, constantly repeated. Insiders suffer the curse of being known: more important than their strengths, their weaknesses are known. Therefore, hiring managers following the typical heuristic CYA process will rarely select an insider "already known to be fallible" over an outsider with a sparkling resume, impeccible credentials and impressive interview-handling skills. No one will be blamed if the outsider is hired and fails... it's totally SAFE, because no one could have forseen their flaw; unlike what happens to the manager who hires the insider with known weaknesses. When viewed from the perspective of the downside risk of hiring an insider, it's a miracle that any ever get the nod.

[Chuck Csizmar]

An interesting perspective, Jim. Has anyone ever considered you a cynic? While I don't agree with you in terms of general trends and common practice, I have seen isolated instances of exactly that CYA behavior.

[Shawn Miller]

These types of discussions are ongoing -- in fact I just had one with one of our BU HR VPs yesterday.

Interestingly, we were on the same page -- we are both supporting the promotion of an internal candidate (at a VERY large pay increase in order to position the employee within the new salary range). We're anticipating executive leadership push back, but are standing firm in our recommendation. Wish us luck!

[Chuck Csizmar]

I can anticipate executive leadership saying, "how much?". Which is when the employee's performance and pay history are reviewed, looking for justification or counter-arguments regarding the VERY large pay increase.

You didn't mention where the employee would be positioned in the new salary range, but if you have to grant a big raise simply to reach the minimum, that would be further ammunition that the internal candidate isn't ready for the new job. Good luck!

[Shawn Miller]

Yes, we're anticipating that, Chuck.

The employee is a very high performer in a different, lower-paying geographic) location we're shutting down. Unfortunately, that location did not receive pay increases for a prolonged period of time and some positions may have been paid consistently below market to begin with. The plan is to relocate the employee (who we've already invested in via tuition reimbursement) to leverage the "intellectual capital" we have and not prevent it from walking out the door.

Thanks for the feedback and opportunity to further refine our case! ;D

[E. James (Jim) Brennan]

Glad to hear, if my jaundiced cynical views are being disproved by current more enlightened practices! Just take it as a cautionary note, then. The Halo effect usually works to the advantage of the outsider whose limitations are less obviously apparent if they have passed many levels of elimination before being selected; all those who choose them have a vested interest in their success. Remains depressing, though, to see firms still more willing to give "the right" pay to an outsider over an insider better known but for whom a corrective adjustment would admit past management error. Ergo, the old saying, "Best way to get a raise is to quit and get re-hired."

[JD]

There is a lot of truth in what Jim is saying. I do not believe he is being overly cynical.

[JD]

Chuck,

Reference your comment above---do the employees in the office really know the qualifications of the outsider?---they usually do because they've seen their resume in most cases as a part of the interview process. In many offices, they participate in the interview process, and companies that try to keep the resume confidential, only arouse more suspicion.

Also, this idea that management says to employees---we don't talk about other employees---sounds like something that happened when employers believed that bullying employees and curt answers was a smart approach. Today, enlightened employers maintain a more open, intelligent dialogue with their employees. This "tough" guy approach seems rather old school and characteristic of the "Russian" school of management.

JD