Why are you willing to pay a person more from the outside than if you were to promoted an employee from within?
EXAMPLE: Bubba has been working for the company for 10 years moving up the ranks till he made it to a supervisor. He is getting paid 40 grand a year.
They decide to hire a 2nd co-supervisor and start him at 50 grand a year.
Same with temps starting at a higher rate that the employees that have been with the company for a long time.
I am not a businessman, but I think the logic (such as it is) goes like this:
Bubba has a job already, he’s probably a loyal little doggy–um, employee, & the boss doesn’t need to woo him as he’s already there. The new hire was wooed–maybe had to be wooed–with the $50K offer. Bubba was content with $40K, right? (At least until the new co-supervisor showed up.)
Now, if the boss were smart, he would give the higher salary to the co-supervisor with seniority. It’s a smarter decision, better policy, & would be respected by both employees. But bosses, alas, are not always smart. Bubba is within his rights to demand a raise, which might teach old pointy-hair–er, the boss, a lesson.
Oh, I meant to add, “or give them the same salary.” This would be very smart as well.
Great question! I just lost my assistant, an incredibly outstanding woman, due in part to this principle. With her gone, I might be forced to do less posting here. 
Anyhow, the reasons, such as they are, IMHO are:
The Human Resources Dept. is made up of morons, but with with power.
HR uses their power to construct a pay procedure that’s orderly and convenient FOR THEMSELVES, regardless of its impact on the organization.
HR distrusts individual managers.
Senior management isn’t always willing to take the trouble to really distinguish levels of performance.
Thanks, Chubbs for asking the question.
The ultimate, brutal fact is that people get paid what they’re worth to the company, as long as they’re willing to work for the company. If Bubba quits, his replacement will probably cost $50K, and the company will be that much poorer. But as long as Bubba works for $40K, the company is saving $10K, so there’s no incentive to bump him up.
It’s not about outside or inside. It’s what you can get away with. Sane businesses have a reasonable pay scale, and hire at the same level that internal employees are making, just to avoid the bad feelings (and abrupt exits) of the situation you’re describing.
One reason, in a large corporation at least, is that it’s a lot easier to get rid of a temp.
And temps can cost less in the long run.
Peace,
mangeorge
I just re-read the OP.
Are you saying that a company hired an assistant for Bubba and is paying this assistant more than they’re paying Bubba? This is indeed wierd. I’ve never seen such a thing. Is it a common practice?
Peace,
mangeorge
2 different people are rarely exactly the same to an employer - the position may be the same, but one may have different credentials etc. Of course, with a current employee, one already has a track record of being competent/lazy etc Promotion does not mean that they considered the employee to be wonderful in every category.
When negotiating with any employee or potential, the employer is negotitating with that individual employee. What they need to pay to ‘get’ person A may not have much relation to what they need to pay to get person B.
3 (and why I hate it when folks attempt to compare notes with each other). you may not be hearing the absolute truth, there also may be other issues you may not be aware of -for example, one may have opted out of a health insurance plan if they were covered by a spouse. Often if this sort of thing happens, the employer will raise the pay rate since they would be saving x$ from that. Same sort of thing w/vacation and other employee benefits. These decsions, of course would be handled through HR depts, the boss & employee and aren’t really ‘bubbas’ business (unless of course, Bubba wants the employer to share everything from his personnel file w/his coworkers, like the fact he had to leave early on Wednesdays to go to a shrink or the day he took off to see the protologist for example)>
I just retired from among other things, being an employer. It was a small business, but I do know some of the problems.
The fact is that december and wring both have some good points and it is hard to just give an answer.
Was Bubba* suffering from Peter’s Principle? You know promoted to one level above his efficiency? Is the new man more qualified and likely to move up to supervisor and Bubba becoming his assistant with another yet to be hired employee or maybe one being promoted? Does the company have a Human Resourses Dept. or is the boss handling that and lots of other things?
As to subs, yes you can get rid of them without worrying about getting drug into court, but they are expensive in my experience.
*With the name Bubba I’d think hard about paying him more than $22,000.00 and I’m in Mississippi.
Perhaps during the years that Bubba was working his way up, he was getting the company’s standard 3-5% raise - 6% during the years he was really well-behaved. At the same time, the market for Bubba’s position is increasing at a higher rate. If the salary range has gone up that much, it might be a good idea for Bubba to make a lateral move - that is, take an equivalent job with another company for $50,000.
But first he should change his name.
Because salaries in the job market often increase faster than the standard 3% raises companies usually give. I used to see this a lot in technology. You go to work for a company. A year later when the new college grads are hired, they get paid a higher salary. It’s obviously a fairly stupid practice since any competent or motivated employee would then quit for a higher paying job. After awhile you’re just left with kids 1 year out of college and people too dumb to find a new job.
The reason you see companies hiring outside managers instead of promoting from within is because they want someone with a proven track record as a manager/director.
Who’s “they”? This could not happen at my company, a pretty big company; you could not possibly hire a supervisor and pay him more than a supervisor with ten years of previous experience in the company. Can’t fit under our pay scale. Everyone’s salary goes up every year based on an external audit of competitive salaries, and raises and bonuses are then popped on top of that, so you can’t even be left behind by the market.
Maybe your employer is insane. Or maybe the new guy has something the old guy doesn’t.
Wouldn’t happen in my large (huge) company either. Same scenario as RickJay’s, for the most part. As an exempt employee, the inept supervisor would probably be offered a way out of her/his dilema. A transfer, enhanced retirement package, or a lateral move disguised as a promotion are all possible. But ‘they’ wouldn’t hire someone else at an equal or lower position and pay that person more.
Corporate politics just don’t work that way, at least where I work. Not even at the non-exempt level, actually.
That’s what restructuring is for, to weed out the “chaff” that accumulates over the years.
Peace,
mangeorge
I thought “restructuring” was one of those nice feel-good-sounding terms for having a massive lay-off. Like “right-sizing.”
That it is, tracer. But it’a also a golden opportunity for re-defining positions.
Peace,
mangeorge
I worked for a large company for quite a while as well. I did see this type of thing happen all the time. However I was in a position to recommend and influence that salaries offered to incoming employees. As has been suggested previously, simply because two people are at the same level in the hierarchy within the company doesn’t necessarily mean they are at the same skill level. For instance in the OP you neglected to mention how much industry experience and education the person coming in from the outside has.
Say for instance the internal person has 10 years experience within the company but only 2 years as a manager. Now let’s say the external person has 10 years as a manager in the industry, an MBA and 4 years experience running his own company. In this case it’s obvious that the external person would be paid more than the internal employee, regardless of the fact that the employee has been with the company for 10 years. The positions I was hiring for were technical in nature (programmers and database administrators) so time in the industry, capability, education and certifications as well as general knowledge all played into a person’s salary.
Another factor that played into the decision making process was the specific job opening. Say for instance that you are pretty sure you will have an upper level manager position opening soon, but you know that none of your internal employees have the background or the education to fill this position. Then you get a supervisor position open, and in the process of interviewing candidates you find a person that would do a wonderful job at filling the higher level position. It’s not uncommon at that point to bring them into that position at the higher end of the salary range both because they are qualified, and you want to hang on to them until the position does open.
As far as temps, I’ve heard a lot of people complain about them. In my experience it usually went something like this. Temp X comes in from company Y and we are paying $50 an hour for them. While internal employees are are only making $20 to $35 per hour. Usually the internal employee hears about this and then complains about it and wants a raise to $50 an hour. This of course won’t happen for several reasons. Employee’s salaries only constitute a portion of what the total cost to the employer is. For instance while you pay taxes out of your income, there are certain taxes such as FICA that your employer is required to match dollar for dollar. Usually the total cost of all of these taxes run around 10% of what the employees gross take home pay is. Internal employees often dramatically underestimate what the actual cost of employee benefits are. This really depends on the company, but some companies pay as high as 20% or more into health benefits. Many of the total cost estimates that I’ve read put the salary an employee is paid as low as 65% of the total cost of the employee to the company. There are many, many other things that go into this (training, bonuses, cell phones, offices etc).
Typically none of these benefits are made available to temps. Rather that $50 is paid to a temporary agency which handles all of these issues for the temp. Of course the temp agency also takes a cut of this wage, which in turn drives the rates higher. The other thing is with a temp, companies pay for the luxury of saying: “We won’t need your services tomorrow, have a nice life.”. The companies know this and the temps know this, so that is also reflected in the pricing of temps.
Unfortunately this usually doesn’t get explained very well if at all to employees within companies. I personally advocate a more open employee pay structure, rather than the rigid “If you tell anyone your salary we will fire you and take your first born son” mentality that companies often exhibit. Usually this type of “confidential salary” policy is implemented because the company doesn’t have an established method of objectively evaluating an employees performance. Without an objective evaluation, employees are paid based on how well the manager “thinks” they do. Which can obviously lead to all kinds of problems with favortism and perception.
I hope this in part answers your question why it isn’t that uncommon for a company to pay “outsiders” more than an “insider”. To me all pay should be based on merit and overall value to the company, rather than some structured pay scale that artificially elevates time with the company over actual productive work output.
I forgot to mention that after leaving the large company that I worked for, I started a small company of my own. So I directly see and deal with these issues on a daily basis. If that helps to understand my perspective any. 
I also don’t generally go by the standard 3% raise. Rather as employees progress in their skill sets and increase their overall value to me, I give them a raise to reflect that increase in skill and/or productiveness.
Any good employer realizes that the cost of keeping a good employee is far less than the cost of finding a new employee and training them to do the job.
Bubba better start looking elsewhere I’m afraid. A company doesn’t hire a co-supervisor (read replacement) unless they are unsatisfied with Bubba’s performance or perhaps he ruffled up some feathers in the heirarchy . The fact that the salaries are public adds further insult. The simple fact is if you are being asked to improve the performance of a department over and above what the present supervisor can accomplish then an equivalent salary is not satisfactory, and 10 grand represents a minimal increment.
There are lots of reasons that an outsider might be hired at a higher salary than an insider, at the same job title (if, as some have suggested, the new employee has a higher salary than someone he/she reports to, something is very wrong.)
Some of these reasons are valid, some are the result of stupidity or mismanagment. Several have been mentioned already, but here are a few that are fairly valid:
(1) The pay range for a supervisor might well be $40k to $50k (that would be fairly wide, but can happen). If Bubba was “moving up the ranks” and just became a supervisor, he might be at the bottom of that pay range. If the outsider coming in has been a supervisor for many years, he might be at the upper level of the pay range for that position.
(2) The company might have been looking for someone with special skills or past experience. There is a law of supply and demand at play here, and the new person might have competencies, skills, or experiences that bring a unique approach and are worth a premium.
(3) There could be different salary grades under the same title of “supervisor” – say, Supervisor I, Supervisor II, etc. These distinctions could be based on the number of people being supervised, the additional responsibilities, or whatever. In this case, the new supervisor might be in a different (higher) salary grade than the long-term employee.
(4) It is possible that the salary structure has not been reviewed in a long time, and that it needs to be updated or has fallen out of synch with the market. If the Human Resource function is doing any monitoring (as it should be in a well-run company), this tends to be detected as new hires are coming in at higher salaries than existing employees.
On the question of why temps may be paid more than regular employees, it depends on the situation, but a temp who is self-employed is being charged the full 15% for social security (not just the employee’s 7.5%) and probably doesn’t get benefits such as the medical program, retirement plan, etc.
Right now, I’m temping for a rather large quasi-governmental entity. This is not my first temp position, and this one does not differ significantly from previous positions.
In terms of salary, I make less than a permanent employee. I have looked at job postings for equivalent positions, and the listed salaries start at over $2 an hour more than what I make now. So if I took a permanent position with this company, I’d have to be brought up to standards, given my qualifications.
I am also being charged the full tax rate, meaning that I don’t take home as much as a permanent employee, adjusting for their higher salary. I lose over two dollars an hour to taxes. Some agencies don’t take tax out at all, leaving the employee responsible the following April.
Benefits-wise, I don’t get any. The benefits I was offered were high-cost and low-return, so I turned them down. The fact that temps aren’t guaranteed to work adds to the uncertainty, and I don’t want expensive, bad insurance if I don’t know where I’m going to be working.
Assuming I am hired as a permanent employee, I will be making a significantly higher salary (because I have experience that this company wants, and they know it), excellent benefits (they are quasi-governmental, after all), and greater job security. Yes, I will be making more than other people in the department. Again, it’s because I’ve got experience specific to what they’re looking for. That means a lot more than whose butt I kiss.
Robin