Insiders Vs. Outsiders

Have you heard this complaint before?  "The Company would rather pay more to a green outsider than give one of us insiders a decent promotion"?

How have you responded?

The reason for the gripe is that, when considering two individuals for the same job the employee on the inside oftentimes will be offered a lower salary than if the company went outside to hire a stranger.  To compound the insult, when an outsider is hired, it is not unusual for managers to ask insiders to train and orient the new 'wunderkinde" to learn how the company operates.

Aggrieved employees feel that an insider already knows the company, the people, the products / services as well as the relevant policies and procedures.  That knowledge and experience is an advantage, they say, shortening any learning curve and cultural orientation.  And the "fit" has already been established. 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.

Some insiders may feel that the technical experience they have gained in their current job could be used in the new position, so that in effect they have already prepared for the new role.

However, the prevailing practice seems to be that, when a company looks to the outside recruiters will be instructed to search for someone who already meets all the qualifications of the job; an experienced candidate who has already performed the job, whose only learning curve would be a short term acclimation to the new company's policies and procedures.  They can hit the road running.

Outsiders are considered to be free of "baggage": no biases, preconceived notions or internal social network, and are thus considered more able to become immediate agents for change / improvements within the company.

You should also note: if someone already has performed the subject role the chances are good they are already being paid at or about the competitive or going rate.  If that is the case then the company would be compelled to pay a premium in order to attract such a qualified person.  The offer of employment would likely have to be above the going rate (or above the midpoint in some companies).

Here's another common office complaint: "I'd be paid more money if I quit and the Company rehired me" 

Unfortunately there is some truth to this gripe.  Over time the external marketability of good performers is rarely matched by annual performance awards within the organization.

Merit increases averaging 3.0% (less for satisfactory performance) may not keep pace with competitive wage growth, especially for in-demand skills.  Thus over time a company would find the prevailing external wage greater than what they are already paying experienced people.  And if you have to hire an experienced person you would likely have to pay more than the going rate, thus potentially creating internal equity issues.

You can do the math; if market pay increases at a faster rate than annual performance rewards, employee pay will fall behind.  At some point this will become a serious problem.

The cumulative impact of annual merit increases is a difficult issue to resolve, in that all employees are likely being reviewed at the same time (focal date).  Special treatment requests might create equity or precedent challenges for managers - both of which Human Resources would have warned against.

Managers should therefore take periodic stock of their staff; assess their backgrounds, experiences and performances, with a weather eye toward whether current compensation is both competitive and internally equitable.  To do less would run the very real risk of disengagement and separation - of likely your better performers.

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. 

Thanks to Compensation Café
http://www.compensationcafe.com/2011/05/insiders-vs-outsiders.html