Benefits and Compensation

Pros and Cons of Increasing Your Starting Pay

Employers are finding it’s more difficult than expected to recruit top talent. Even as the economy begins to rebound and more people can go out (as more get COVID-19 vaccinations), there still isn’t a high number of applicants for vacancies.

Source: pong-photo9 / shutterstock

This leaves employers trying to figure out what can be done to improve their odds of attracting, hiring, and retaining the right people. One clear option would be to increase their starting pay. Let’s look at the pros and cons of making this type of adjustment.

Advantages of Increasing Starting Pay

Here are some potential advantages to increasing the starting pay you offer:

  • Potential employees may apply to a job with a higher starting pay they wouldn’t normally consider for a lower starting pay, thus greatly increasing the talent pool.
  • Employees will be more likely to stay if the pay level is better than your competition’s, reducing recruiting costs due to less turnover and resulting in having to train fewer new people.
  • Offering a higher starting salary might attract applicants with higher levels of education and experience, thus increasing the overall skill set of your employee base.
  • Your company will be in a better position or may not be impacted when minimum wage increases come through.
  • Better-paid employees may mean more satisfied employees, which can boost employee morale.
  • Higher wages may mean employees can meet their financial obligations with less stress, and less stress is better for both the employee and the employer.
  • Less turnover can translate to greater customer satisfaction because customers can interact with the same employees they know and like and the institutional knowledge stays intact, as there will be less of a need to continually train new people.
  • Higher starting wages may improve the public’s perception of the organization and lead to an improved reputation.
  • Hiring may be easier because people will have an improved perception of the employer brand.
  • Paying employees a higher salary means they will likely spend more and help the economy; in some cases, this can end up increasing demand for the organization’s goods and services.

Disadvantages of Increasing Starting Pay

The main con to increasing your starting pay is the cost, but here are some other potential drawbacks:

  • Other employees may now be paid less than new hires, resulting in existing employees’ getting frustrated or leaving if nothing is done to remedy the situation.
  • The employer may need to improve pay levels for everyone in the organization to keep pay levels fair across people, roles, and seniority levels.
  • Increased operating costs (in the form of increased wages) may mean the organization has to charge more for its goods or services, which can cause customer frustration and possibly some loss of customers.
  • Higher wages also come with increased employer payroll tax obligations.
  • The money to spend on higher wages may have to come out of profits if revenue hasn’t also increased, meaning fewer employees can be hired.

Has your organization increased starting pay in an effort to attract and retain more and better-qualified employees? What were your experiences with this?