How much of a loyalty tax are you paying?

Loyalty tax is the concept that employees who stay with their employers for longer may be underpaid when compared to those who change employers. In this newsletter we dig into what trends the data can reveal about the loyalty tax.

But before we jump into the content it’s time for a quick word from our sponsor

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The methodology

To make sure we’re comparing apples to apples, we compared employees in their first year of a given level that were externally hired versus internally promoted. We grouped employees based on similar streams and countries as well to keep the data consistent. Small sample sizes were excluded.

The findings

To start off, lets take a look at what the spread is between externally hired and internally promoted employees. For this, we selected responses that were from Q3-2023 and newer for it to be reflective of our current market.

As you can see, in the US there is very clearly a spread between what externally hired and internally promoted employees are making. Interestingly, in the US, managers seemed to have the highest spread between external hires and internal promotions. I spoke with some recruiters about this difference and they confirmed that manager positions have been very difficult to fill, so it makes sense that employers have had to pay a premium to attract talent to fill their vacant roles.

Looking at Canadian responses, it seems the market may be slightly less competitive, with the spread between external hires and internal promotions being slightly lower for seniors, and considerably lower for first year managers. Senior Managers were excluded from the query as the sample size for first year senior managers was too low to be indicative of real trends.

Where is the trend going?

We have all heard the narrative around the talent pipeline crisis in accounting, but I like to verify for myself. A higher difference between external hires and internal promotions can be an indicator of difficulty filling open positions, so it. is interesting to see that the spread between the two has only widened since 2021.

So what does this mean for you?

Well if you like your role it might not mean too much to be honest. We’ve long known in the industry that in the short term, to optimize salary you should be open to moving around every few years. The data backs this up, but there are some qualitative things to consider before making the leap: do you have good people working on your team, are the hours reasonable where you work, are you building long term relationships that could support you should you want to make partner one day?

If you are looking for something new…

Did you know that Big 4 Transparency runs a talent pool where you can get paid $1,000 for finding a new job? We partner with a few handpicked recruiters as well as a few remote firms looking for talent. Your name will never be shared publicly so your employer won’t find out and you will only be contacted for roles that fit the criteria you shared.

We can’t guarantee you’ll be contacted with a match, but it’s worth a shot to check it out if you’re open to having some conversations about possible new roles for you.