Ask HN: Why is it easier to get a raise with a new job?

nobody likes paying more for the same service.

I've seen it time and time again. An employee wants a 10% raise but management says no and the employee quits. Then after a long search a new hire comes in at 10% more. Why not just give the existing employee that 10%?

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.

  40k*(1.18^10) = 209k
  60k*(1.18^10) = 314k
  80k*(1.18^10) = 418k

Three main reasons which feed back on each other:

1.) Giving big raises to existing employees often causes morale problems with their coworkers. People talk, and they get resentful if someone who (in their view) is working no harder than them is suddenly getting paid $20-30K more. So giving a big raise to one person usually means you have to give it to all of them. There are mitigating circumstances if you can point to some external circumstance that's changed (eg. "Alice got her MBA", "Bob just led this big project that made us $10M", "Cindy got promoted"), which is why companies are more likely to give raises under these circumstances. By contrast, a new employee doesn't have the gossip networks of existing employees, and the business can often invent a reason why they're being paid more (eg. "David brings special skills that are crucial for us right now", "Erin was hired in at a higher level based on her experience at XYZ Corp.")

2.) Usually the company that hires away an employee for much more money has very different profit margins and revenue growth than the one they were hired from, and so they can afford to pay more. This is the economy functioning as normal: employees should jump from companies that are less productive and less profitable to those that are more productive and more profitable, because their labor will net both them and the company more.

3.) There's a cognitive bias known as anchoring, where people form a mental model of how much a person/security/job/product should be worth, and refuse to update that mental model in the face of gradually changing facts. So if you get hired in as a junior dev fresh out of college at $60K/year, your boss's mental model of you will be "that college kid we're paying $60K/year". But after a couple of years of experience, you will be way more valuable to everyone else in the market than the new college kids coming out now, and your salary will reflect that on the open market - but your boss will still think of you as "that college kid we hired for $60K/year".

The factors feed into each other, eg. anchoring is also why companies don't adopt new production techniques and go into new emerging markets that generate higher productivity per #2, higher productivity generates a qualitative difference per #1 that justifies higher wages, anchoring is the reason why bosses & coworkers are blind to minor or gradual differences in productivity per #1, and social customs of the employees often reinforce old production techniques and prevent them from benefitting from #2.

It may be helpful to think of the rational state of the workforce as always requiring retraining, the rational state of business relationships as always hit-or-miss, and the rational state of the job market as always requiring turnover. And then individual companies create bubbles within them to satisfy human needs for security & stability, because our emotions evolved when the pace of change was significantly slower. Because most people have a bias toward stability, it creates economic opportunities for those who rationally choose instability and throw away their old relationships for more productivity and higher profits.

Equity compensation is both the cause and solution to this, I think. Newer employees are favored on a cash salary basis, but older ones have lower option strikes and/or larger equity grants.

Roughly speaking, any new equity grant from a company your parents haven't heard of is worth $0 when you join. If your employer is successful, these grants become worth actual money, and that is your effective raise. If not, then you can and should job hop instead for a cash salary increase.

On the flip side, since the new equity grants are worth approximately $0 at signing, employers have to match the actually valuable equity that candidates are receiving with cash salary instead.

I think there are two main reasons.

1. Internal process: the budget/process for promotion and pay raises are probably relatively fixed for mid to large companies, so there isn't much room for managers to navigate even if he/she champions the salary bump.

2. More cynically, there is also friction for an employee to leave their current position (interview, potentially relocate, risk of new job being bad fit, etc). And this friction manifests as the pay gap between market rate and salary. As a corollary to this, for an employee with a competing offer, this friction is removed and the company is forced to re-evaluate the pay. But there may not be anything the manager can do. See #1.

I found I was being 12% less than my peers. My boss said yes I'll get you a pay rise to match. 6 months later, nothing had happened. It then took me 3 weeks to get another job paying 20% more. When I told my employer I had this offer, all of a sudden the 12% appeared. I said no, too little too late - a few weeks later they said "Name your price" to stay.

Simple explanation: they saved money. Of course now they have to recruit, and then the new person needs a lot f time to learn what his company does (it's complicated). Cost is WAY more than that 12%, but it doesn't show up on the balance sheet.

So to answer OP's question: because companies don't really value their people.

Lots of reasons. People tend not to appreciate what they have. However I think the main reasons are economic and political. Companies want to keep costs down. They don't want to pay market rate. Some employees will stay put, because they're comfortable, and don't want to uproot they're life; so you can pay them less.

Politically companies "want" to budget raises as a fixed cost and divy up among employees. So they'll try to negotiate against their budget and fixed, manageable raises / promotions. Lots of people will play along.

The logic is insane. Suppose I'm the employee, and selling a car; the company is buying one. I want 10k, the company says, I've only "budgeted" 7k, but will agree to 8k. Meanwhile I have a buyer willing to pay 12k; company says no deal, and instead goes out and pays 15k for the same car. This seems to be how many of these situations unfold. The crazy thing is many employees are willing to stay for less than they can get on the market; but the company just won't do it.

Game theory. Calling your bluff, most people won't leave if the boss says no.

I’d say it’s related to how HR is measured. They typically get their “big wins” by bringing in “rockstars”, not giving raises.

There is more inertia to move to a different job than stay. Companies know that and thus have to compensate you for that added inertia.

I got an offer for 150% of my current salary and a senior title. I declined because it didn't match where I want my career to develop.

any way to leverage this in my current job? I'd have to disclose that I was flirting with others...

This gap is way too big here in India. Here you get yearly hike of 8-10% while by getting a new job you can get as much as 60-100% hike easily. Maybe here starting salaries are too low, You have to job hop to reach a good salary.

Because you have more leverage: No "raise", no work. At your current company "No raise" _only_ means an increased risk of you leaving.

I would say it is about incentives.

If hiring manager is 'graded's on number of people hired, usually has a decent budget that might dissappear every new fiscal year, and they want to hire you, they will be willing to negotiate :)

On the other hand, your manager might operate on assumptions that you either won't leave because of your pay and if you'd leave you would have left even after you receive a raise.

Because for many employers, they live under the false pretense that not giving you a raise is saving them money. Granted, it works most if the time. Most people stick around out of complacency or even inability to get a new job. This makes it so that the employer has absolutely no incentive to proactively give raises. You really must force their hands. This is why I don't believe in the stigma around job hopping. It makes no sense why anyone believes that being loyal to a company is in their best interest. Every 2-3 years make sure you are putting yourself on the market to test how much you're worth.

Maybe its the same reason why Phone, Cable, power, real estate companies give better offers to new customers. Once they have you they think you will fall into a routine and not look for a new jobs. You will have to go do interviews find a good fit etc.