Wooing New Workers Can Leave Old Ones Cold

Larry East was 23 in 1964, when he began earning $3,000 a year at IBM in Toronto. By the 80s when salaries soared to beat inflation he still made a good deal more than the companys new batch of workers.

But other employees lower on the pay ladder were less fortunate. Tensions simmered as many of them watched newcomers salaries in similar jobs eclipse their own.

During those inflation years, starting salaries were exceeding (those of) people who had been at the company two or three years, said East, who now lives in Carrboro, N.C.

He was earning $80,000 as a marketing manager when he left Big Blue in 1992. Their take was : Either pay me more or I'll go elsewhere. There were quite a few people who ended up leaving the company.

Inflation spurred salary growth in those years, but now it's the drought of available skilled workers that drives companies to take a no-holds-barred approach to hiring new employees. With the nations unemployment rate at a 30-year low of 4.1 percent, businesses are rolling out the red carpet to attract new bodies offering high salaries, signing bonuses and stock options. Meanwhile, some seasoned staffers plod along financially with 4 percent annual raises and ponder sending out resumes.

In this golden age of employment, some think the payoff for their work is tarnished.

Its no illusion that the air-tight job market creates disparities in pay between new and old workers , said Paul Dorf, managing director for Compensation Resources, a compensation consulting firm in Upper Saddle River, N.J. It's a process called wage or salary compression: hiring a new person who earns as much or more than current workers.

Companies are enticing some workers from their current employers with pay increases of 15 percent to 20 percent, while more experienced employees might take home 3.5 percent annual pay raises, Dorf said.

They're moving ahead at a much faster pace, Dorf said. If you've got a 15 to 20 percent increase, an employee getting 3 percent increases would take five years to get to the same place. (New workers) are leapfrogging over the person who's been there.

That's particularly the case in burgeoning fields like technology and engineering.

East, the IBM retiree, said he's no longer surprised when he hears tales of kids straight out of college or even high school making $50,000 a year a salary that took him 30 years to reach.

And beginning salaries in other industries aren't shabby, either. Chemical engineering graduates in the college class of '99 averaged $46,929 a year, according to a national survey by the National Association of Colleges and Employers. Consulting firms wooed management information systems grads with offers as high as $49,000.

Even fast-food restaurants are scrambling to offer more than the $5.15 minimum wage, sometimes paying new employees more than people who were hired six months ago, said Mike Wald, a regional economist in Atlanta for the U.S. Bureau of Labor Statistics.

Employers who don't try to balance the disparity risk losing workers who might choose to try their luck in the market's hiring frenzy, Wald said.

There's no law that says you have to pay long-term employees more than new employees, but there's a disruption in the work force, Wald said. If you have unhappy employees, you're going to have lost productivity. Employees may start looking for new jobs.