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Companies give tiny raises to loyal employees. If hiring is so expensive why don't companies make effort to retain employees by giving them raises that make the

Companies give tiny raises to loyal employees. If hiring is so expensive why don't companies make effort to retain employees by giving them raises that make their compensation at least at par with that of the new hires.

As_You_Wish 4y ago
Because human nature favors inertia. Some may leave because they don't get pay raises, but most people hate change. So they stay. And the company gets higher profits by keeping payroll down. However, if every single person quit exactly at performance review time, every single employee, due to not keeping up with new hires or comparable pay to the industry, they would change. But they don't do this because all employees don't quit. It's a simple calculation. How many people will quit? if you have 100 tech people, getting paid $100,000/year each, that is 10,000,000 per year. Give them 25% raise and then the payroll goes up $2,500,000 per year, and you have to pay that the next year, too, and the next year, and the next year. Plus bonuses and all that. Payroll taxes go up, too. So a lot more expenses. Also, if you give people a 25% raise, what do you give them the following year and the one after that? There's all kinds of psychological things going on in the game. You give someone a 25% raise this year and a 1.5% raise next year, nobody is going to look at it as bringing them on par to others, they are going to look at being ripped off because they got 25% last year and only a measly 1.5% this year. "Why didn't I get at least 12%???" But if there are low raises, and 2 people quit because they are not getting paid enough, then the company hires 2 more people to replace them, that's going to be $350K to hire two new hires.
solatic 4y ago
Sibling commenter gave you a complicated answer. The one-word answer is: Greed. Never under-estimate the human capacity for emotion and character deficiency to get in the way of the rationally correct strategy.
- As_You_Wish 4y ago
  Greed is overly simplistic. I think my complicated answers are better. :)

As_You_Wish 4y ago

Because human nature favors inertia. Some may leave because they don't get pay raises, but most people hate change. So they stay. And the company gets higher profits by keeping payroll down. However, if every single person quit exactly at performance review time, every single employee, due to not keeping up with new hires or comparable pay to the industry, they would change. But they don't do this because all employees don't quit. It's a simple calculation. How many people will quit? if you have 100 tech people, getting paid $100,000/year each, that is 10,000,000 per year. Give them 25% raise and then the payroll goes up $2,500,000 per year, and you have to pay that the next year, too, and the next year, and the next year. Plus bonuses and all that. Payroll taxes go up, too. So a lot more expenses. Also, if you give people a 25% raise, what do you give them the following year and the one after that? There's all kinds of psychological things going on in the game. You give someone a 25% raise this year and a 1.5% raise next year, nobody is going to look at it as bringing them on par to others, they are going to look at being ripped off because they got 25% last year and only a measly 1.5% this year. "Why didn't I get at least 12%???" But if there are low raises, and 2 people quit because they are not getting paid enough, then the company hires 2 more people to replace them, that's going to be $350K to hire two new hires.

solatic 4y ago

Sibling commenter gave you a complicated answer. The one-word answer is: Greed. Never under-estimate the human capacity for emotion and character deficiency to get in the way of the rationally correct strategy.

As_You_Wish 4y ago
Greed is overly simplistic. I think my complicated answers are better. :)