Tim's Wiki

Talent Retention

Properties3
descriptionThe salary-compression cycle that hollows out a fast-growing company's engineering org — paying market rate to new hires while existing engineers drift below it.
tagsmanagement, business, career, engineering
aliasesSalary Compression, Hiring Cycle

3 min read

Talent Retention

Definition

Salary compression is what happens when a company pays the market rate to attract new engineers but not to keep the ones it has. Over a few years this drains the people who hold the domain knowledge, and it does so without any visible failure — the business keeps running while its engineering future is spent.

The argument was written against New Zealand startups, where a small professional pool makes the cycle tighter, but is presented as general to fast-growing companies. Xero is named as a public example via its own Glassdoor reviews.

Core Ideas

The cycle

Hire new talent at market rate
        |
        v
Raise existing pay to match?
   /                    \
 Yes                     No
  |                       |
Stay          Existing engineers find out
              and ask for a raise
                  /            \
                Yes             No
                 |               |
               Stay        Check the market
                            /          \
                    Can get more     Cannot
                          |             |
                        Leave         Stay
  1. Good existing engineers’ pay drifts down to level with average engineers’. Glassdoor reviews for the named company describe the accompanying symptoms: “raises and promotions are based on who you know, what you say and who you compliment, very little to do with your work related skills, effort or accomplishments”, and “however perfectly good at what you do… you will expect yourself to get 2–4% raise max per year.”
  2. They work it out, feel it is unfair, and look elsewhere — leaving with the domain knowledge.
  3. Some stay. They may be talented, but often are the less ambitious or the comfortable — and they are the ones who onboard the new talent.
  4. Years later, the new talent reaches step 2 and repeats it.

Where it ends

The company stabilises. The people who stayed accumulate titles — senior, principal, lead — and dominate every technical decision, on practices that may be years stale. The stack stops attracting good engineers, so the ambitious keep moving through: to a company worth staying at, or to one they found themselves.

Note what is saved at each exit: the company keeps the money and loses the person. The saving is immediate and legible; the loss is neither.

Breaking the cycle

  • Give engineers trust — let them make technical decisions and try new stacks.
  • Keep existing engineers’ pay above new hires’, always.
  • Hire engineering managers with a real technical background.
  • Review the hiring process every quarter rather than treating it as fixed.
  • Give the raise; if the raise is impossible, give the title.
  • Match salaries to market value — or to what new engineers are being offered, when the market goes strange.

The key to keeping the business healthy is keeping the talent. The employer should care more about the existing people, who hold the domain knowledge and the company’s practices, than about paying more to attract new ones.

Relationships

Graph View

Backlinks