I would add that new hires are seen as solutions to a problem that desperately needs a solution, unlike old employees who are just there doing their work. A company looking for a new hire is not in the same negotiating position as a company that isn't.
Hmm. For those curious, assuming I still understand how to do basic math like this and a few relatively low starting salaries for year one:
40k*(1.18^10) = 209k
60k*(1.18^10) = 314k
80k*(1.18^10) = 418k
2012 £200 (first time programming for money)
2013 £300 (new client)
2014 £425 (new client)
2015 - took a year off -
2016 £500 (new client)
2017 £650 (same client)
2018 £800 (new client)
Everyone talks about the case where it would have been better to just give the raise to the existing employee, but there are TONS of situations where the company ends up winning instead, and those are never talked about.
The argument is turnover costs at least as much but probably more.
However, most employers have no idea how much each employee is worth, especially in engineering. The equation is basically “coder? Ok, add $50k. special coder? Ok, add another $50k. We can’t do too many of those though.”
It’s like, utterly out of touch with the actual business value that people create.
Instead, companies should actually track changes to their business, and then map those back to the person-quarters that unlocked that business.
That’s work though. And it maybe opens you up to political infighting over those attributions.
But I suspect people would be more chill about it if they were getting paid what they are worth.
And, side bonus: you’d find a bunch of people who weren’t contributing much for their pay and save a lot of money by firing them.
Other side bonus: you’d probably eliminate gender and race based pay gaps in your company and drastically increase diversity, with many of the top female and minority workers joining you because you’ll actually pay what they’re worth, not what someone like them is “traditionally” assessed for.
In the end, all of that is probably too scary for most companies. We’d rather just follow some arbitrary rules and know wer’re going to get paid, and put the whole reaponsibility for solvency on the executive team, than to take responsibility for ourselves making a real, traceable contribution to the business.
I think the reason is that big raises are not sustainable over time. If you keep giving your employees 10% raises every year, eventually you can't afford it. So you keep raises to 2-3% as long as possible and only give larger raises along with promotions, or when hiring a new employee.
I was fortunate to find out this pattern early in my career, and I was able to average 18% raises for over a decade by switching jobs nearly every year.