Managers Face Battle To Keep Salaries Fair In a Tight Job Market

If you think the young upstart at the next cubicle who spends half his days fielding calls from job recruiters is making more money than you are, guess what? You’re probably right.

In today’s hot job market, where talent, energy and mobility count a lot more than seniority, new hires often earn more than seasoned veterans. Man-agers anxious to recruit and hang on to employees with particular skills routinely ignore traditional salary scales and pay whatever they must to get and keep them. Increasingly they must offer even more than what they them-selves earn to attract the best candidates.

As pay becomes increasingly arbitrary, lopsided and unfair, managers find them-selves trying to con-tain a bombshell of resentments. Employees who discover that they earn less than co-workers are apt to feel bitter. They may demand more and quit if they don’t get it, or become unproductive.

For this reason, managers deliberately keep employees in the dark about their co-workers’ salaries-and hope that em-ployees remain silent as well. Most, in fact, are more likely to relate intimate details of their sex lives before they reveal the size of their paychecks. Pay is probably the last taboo subject in society, and companies prefer it that way.

So what happens when word actually gets out? One company’s dilemma teaches a hard lesson.

When Agency.com inadvertently posted a salary spreadsheet on its New York staff’s e-mail last September, it unleashed a raft of hallway backbiting and deep resentments over differences.

The file was intended to inform employees of their vacation days but instead contained compensation figures. “It was a blunder, and it was painful,” says Kyle Shannon, chief people officer and a co-founder of the company, a New York ad agency. He and co-founder Chan Suh scrambled to fix the error, asking employees to delete the file and talk directly with them or their immediate bosses if they were upset.

Employees learned the salaries of about 250 Manhattan employees of the company, which has a total staff of about 1,200 in 12 offices in the U.S. and overseas. The highest paid employee on the list earned $177,500, compared with Mr. Sub’s $155,000 and Mr. Shannon’s $150,000.

Most upsetting to many employees were the large ranges in salaries in many job categories. Creative directors, for example, ranged from $65,000 to $123,000, vice presidents from $105,000 to $177,500, senior pro-ject managers from $65,000 to $107,000 and strategists from $78,000 to $113,500. Employees who thought they were on par with colleagues at the next desk were riled when they discovered they made less.

In some cases the ranges reflected the fact that Agency.com had recently acquired a number of smaller companies, each of which had a unique salary structure. But also, “a creative director with team of 10 who is bringing in revenues of $1 million is going to be paid differently than a creative director with 60 people across 10 offices who is bringing in revenues of $5 million,” Mr. Shannon says.

Some of the swings, he acknowledges, simply reflected when people were hired. “Salaries are accelerating so fast that people who have been with the company more than a year or two sometimes are penalized, “he says.

So why not raise loyal veterans to the level their newer colleagues? You’ll break your salary budget, Mr. Shannon says. “You can’t just hire someone and then jump everyone else’s salary 20% or 40% all at once,” he says.

Mr. Shannon tried to explain this to his employees after they learned their colleagues’ salaries. He also promised them he would review the situation smooth out inequities. Still some balked and then quit for jobs elsewhere. In the months since the salary spreadsheet was posted, Agency.com had staff turnover of more than 20%. The salary debacle is seen as one of the main reasons.

Peter Kestenbaum, vice president of global marketing, struggled with the fallout on his staff. One employee was distraught to learn she was earning less than others hired more recently. He reminded her that, unlike them, she had been granted valuable options, which substantially increased her compensation. “But she felt inferior that she was being paid less,” and soon quit, says Mr. Kestenbaum. He re-mains troubled that he sometimes has to pay new employees more than seasoned ones for the same work but, he says, “I can’t fix all the injustices in one fell swoop,” he says.

Mr. Shannon says he regrets the salary posting but he also says managers at his company and elsewhere can’t assume employees are ignorant about compensation levels. “People talk and you have to assume that everyone knows everything,” he says.

The blunder led Agency.com to redress some inequities. It raised some salaries and hired a compensation consultant to review its pay structure. It also is trying harder to keep pay of new hires more equal with veterans. “We’re in an incestuous industry with everyone poaching on the same employees, so someone earning $60,000 here gets an offer (at a competitor) for $80,000 and then a year later is hired back $100,000,” he says.

Managers would do well to avoid peaks and valleys in pay. There are other ways to balance the budget than by giving unequal compensation for equal work. In the workplace, nothing stirs more emotion and feelings of injustice than salary gaps.

Source: Wall Street Journal / March 21, 2000