Pay Bias: It’s Morale Busting When You Punish the Internal Candidate

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Relative pay bias dominates the compensation field.

Inferences made from comparative relationships overwhelm the minds of practitioners and cause them to make rather irrational decisions on matters of great import. Look at how internal candidates are frequently treated unfairly in promotional situations.

Compensation professionals will grant a $100,000 salary to an unknown new hire with the requisite credentials and experience who is assumed to have the knowledge, skills and abilities (KSAs) to potentially do the job because that applicant’s sparkling resume shows a $90,000 present salary.

But, they will deny that same pay to an internal candidate with the same paperwork background and with far superior well-proven KSAs whose competence to perform the designated role has been visibly demonstrated to all the decision makers.

Basing decisions on relative relationships

Because the internal candidate currently only makes $65,000, her value is depreciated. By virtue of her lower current pay in a different job, she is considered worth less than the established standard entry rate of $100,000 for the job. She could do it and probably is already doing it on a temporary basis.

The fact that the full standard job value is $120,000 magnifies the shameful impact of the invidious comparison that swiftly concludes that no one earning $65K can be capable of filling a $100K position or doing a $120K job. Well, maybe they actually can do the job, but it would be somehow wrong to pay them the normal pay rates because because… aw, heck, it’s just TOO MUCH.

The human habit of basing all decisions on relative relationships is well known but still plagues us. Large residual differences between status quo pay and PROPER pay can derail otherwise rational compensation decision making.

Rather than pay the internal promotee with known competence the same amount they would routinely authorize for an external candidate with merely potential competence, many pay managers will temporize. They may give a “mighty” 15 percent promotional increase, congratulating themselves on their generosity in exceeding the normal 10 percent stipend, expecting the recipient to be grateful, before they subsequently dribble out reluctant parsimonious increases to the loyal and faithful fully competent internal promotee.

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A terrible morale-busting message

However, the victim will still remain literally and subjectively UNDERPAID until the end of their career at this enterprise, lagging all peers forever. In most cases, they will resign psychologically before they eventually quit for a rival who will give them proper professional pay treatment.

Unfortunately, the human tendency to overemphasize relative relationships can destroy otherwise sensible reward programs.

Why should the fact that someone earned their spurs at your firm create a negative prejudice against their immediate suitability for fair pay? Mind you, this is what your own compensation system decrees is appropriate rather than the ignorant intrusive assertion of some outside commentator. Such obvious overt bias against the value of experience gained here shouts out an absolutely terrible morale-busting message to all observers.

Please offer any justifications for deliberately undervaluing and publicly mistreating good internal candidates. I’d love to know how people rationalize these blunders decisions.

This was originally published at the Compensation Café blog, where you can find a daily dose of caffeinated conversation on everything compensation.

E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.), and will express his opinion on almost anything. Contact him at ej.brennan@erieri.com.

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