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To attract new talent, employers often offer new hires higher wages than existing employees. But today, a combination of regulatory changes and technological advances have dramatically increased pay transparency in many sectors, making employees increasingly aware of these pay disparities. How do existing employees (and especially top performers) react to these higher-paid new hires? And how can organizations mitigate the associated risks? The authors’ recent research shows that unless employers adjust existing employees’ wages soon after making a new hire, employees tend to resign and that top performers tend to resign faster than others. As such, employers should be aware of the impact hiring higher-paid external talent can have on their teams, conduct regular pay equity analyses to ensure that any disparities are fully explainable, and develop the agility necessary to adjust wages as soon as any inequities are identified.

Cuthbert chowPeter bambergerAcademy of managementAcademy of management discoveriesColler school of managementTel aviv universitySmithers institute of cornell universityColler schoolTel avivManagement discoveriesSmithers instituteCornell university