Has the Great Resignation Created the Great Pay Gap?

Experts warn that every massive pay bump offered to attract or retain talent may create future pay equity problems. What are some solutions?

For years, numerous companies have been trying to close the gap in pay for women and men who perform the same job. The effort has taken years for many firms, along with threats of lawsuits and public pressure to bring women to parity.

But just when many firms are on the brink of solving one pay problem, here comes the Great Resignation, which is creating a new, potentially more massive, pay issue: the widening gap between the wages of loyal employees and those of new hires or of workers who threaten to quit.

US wages are up an average 4.7% over the past 12 months, but many employees have seen far higher jumps — doubled salaries, triple bonuses — either by getting a job somewhere else or receiving a counteroffer from their own firms. And with the taboo around disclosing one’s pay pretty much dissipated, particularly among younger workers, everyone in an office eventually finds out who got a hefty pay rise after either joining the firm or threatening to walk. “It only takes a couple of blips to disrupt the pay equity,” says Tom McMullen, Korn Ferry’s leader in its North America Total Rewards expertise group.

The Great Resignation has many companies stretching salary guidelines. Jobs that were paying $100,000 two years ago, for instance, are being offered to new employees at $150,000 or more. In these and other cases, existing employees making the lower salary eventually find out about a new hire’s bigger payday. What happens next, often, is that individual managers decide how much more to pay the existing workers to quell any unrest. And, experts say, that creates another problem. “Anything that is subjective or done on an individual basis, is likely to cause gaps and inequity in treatment across groups of people,” says Benjamin Frost, a solutions architect in Korn Ferry’s Products group who works with firm on compensation issues.

The problem is even more acute with counteroffers. Someone decides to quit; their individual manager decides whether to put a counter on the table. Many companies don’t have consistent, companywide guidelines around counteroffers, McMullen says.

The pay problem is taking a back seat at many companies that are short of critical talent. Right now, many firms are willing to pay whatever it takes to attract new talent or to keep the people they have, even if it means upending their salary systems. “They’ll deal with the cost implications at another point,” says Juan Pablo González, a Korn Ferry senior client partner and sector leader of the firm’s Professional Services practice.

But experts warn that if companies aren’t careful they could end up busting their compensation budgets or creating massive pay equity issues — or both. Some experts say a potential solution involves giving one-time bonuses to loyal employees rather than raising their salaries outright. Others say firms should consider reviewing salaries more than the traditional once a year — to provide more hope and motivation for those on the low side of the gap.

The best way forward, McMullen says, is to create more robust principles around compensation management, such as hiring guidelines, promotions, hiring and retention bonuses, and counteroffers. For better decision making in the future, he advises getting leaders and reward specialists together to talk about current practices and how they might better support the business.

Frost agrees. “Companies need to refocus on this issue, starting with a reassessment of where they stand now,” he says.