Dear Matt: I’ve been working for the same company for five years. Our industry is facing a labor shortage, so now our company offers $5,000 sign-on bonuses and higher starting wages to new hires. What gives?
Matt says: Recruiting skilled workers is a major challenge, especially in industries such as health care, IT, transportation and manufacturing, to name a few. Employers are trying to do whatever they can to attract new talent, and that’s why sign-on bonuses and higher starting salaries are offered. It’s a recruiting tool.
But before storming into your boss’s office and demanding a raise, shunning your newly hired co-workers, or even leaving the company, look at the fine print, says Jake Wyant, Director of Staffing and Capacity Planning for St. Paul-based Avaap, a global IT services and software development firm.
It’s “buyer beware,” says Wyant. “Some of these sign-on bonuses come with strict noncompete or pay back terms that may not be worth it.”
Joe Kager, Managing Consultant and founder of the POE Group, a management consulting firm that advises companies on compensation strategies, says the use of this approach can be temporary and is usually tied to local labor conditions. For example, a southern Minnesota manufacturing company may not be able to recruit skilled employees to its plant because it can’t find people who want to move to the area; a Twin Cities IT consulting firm may need to hire someone with a rare or specialized skill set; and of course, a hospital or health care provider desperately needs to hire nurses. Sign-on bonuses simply are used as a monetary solution to help try and fill a staffing shortage.
Hiring new employees at or above the compensation paid to current employees in the same position is called wage compression, says Kager. This occurs when the external market value for a position exceeds the current wage provided to employees in a company.
“Not addressing wage compression issues causes internal pay inequity and pay dissatisfaction when new employees must be paid the market value to attract them to the company,” says Kager. “Progressive companies will manage wage compression by increasing the pay of current employees so that that their pay keeps pace with the market” — but many will not. So you have to approach your employer with the information to back up your claim that you, too, are important and deserve to be compensated fairly. Don’t be demanding; be informed.
“I would suggest you speak with your manager about your pay relative to the external market,” says Kager. “Considering the shortage for qualified workers in your field, your employer may see the wisdom of taking care of proven contributors to the company.”
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