Loyalty Tax : The Treadmill of Perpetual Churn

• Senior: external hires earn about $4,000 more. A 4% premium. 

• Manager: $149,500 for external hires vs $134,200 for the promoted. Over a $15,000 gap, an 11% premium. 

• Senior Manager: $201,200 vs $178,600. That's $22,600, a 13% premium. 

Notice the pattern? The premium starts at zero and compounds as you climb. 

I don't think that's a coincidence. Firms reprice their campus offers every single fall because they're competing in the open. Every school has a grapevine, every offer gets compared, and nobody can get away with lagging. But once you're in the door, that discipline disappears. Internal bands drift a little further from market every year, and by the time someone reaches senior manager, the drift adds up to $22,600 on average. 

And this isn't a blip. For first-year managers, the group I highlighted last time, the raw gap has now been sitting in double digits for four straight years of submissions, although it has ticked down slightly from last year. 

The treadmill 

Here's the loop, step by step. See if any of this sounds familiar. 

You're behind on your compensation benchmarking, either because you're not staying current on it or because you figured you could save a quick buck by trailing the market. Nobody decent will accept your posted range, so when you finally have an acute need to fill a seat, you pay up. Part of that premium is just catching up to where comp should have been all along. The other part is the moving cost, because the candidate is taking a risk, leaving their people, learning your systems, and they want to be paid for that disruption. 

Meanwhile your existing team is still sitting on those stale internal ranges. They're getting recruiter InMails every week quoting numbers your bands can't touch. Some of them leave. Now you have more seats to backfill, which means paying that premium on more roles, plus recruiter fees or job board spend, plus the hours your managers burn interviewing and sifting through 700 AI slop applications to find the needle in the haystack. 

Then you compound it. That external hire you paid a premium for? They came in above your internal band, so at raise time you give them 2% to "bring them back in line." And here's the thing about raises: often it's less about the absolute number and more about feeling like you're moving forward. Even someone whose comp is objectively fine will start looking when their raise feels like it’s barely keeping up with cost of living increases. So your expensive external hire, the one you paid all that money to land and ramp up, gets fed up and leaves too. Back on the treadmill. 

And the cherry on top: eventually your loyal senior manager finds out the manager who joined eight months ago is making basically the same money. That's the straw that breaks the camel's back and they leave too. Now you've lost a fully ramped person in their prime, the one with the client relationships and the institutional knowledge you can't post a job ad for. 

Everyone loses 

I want to be clear that this isn't just a firm problem. The employees lose here too. Plenty of people genuinely like their firm, their team, their clients. They don't want to leave. But they've got families to support and their own situations to advance, so they walk away from friends and relationships they've built to go learn a new tech stack and onboard with new clients somewhere else, purely because that was the only way to get paid market rate. 

The firm loses in more ways than the obvious ones. Team dynamics take a hit, and departures cluster. When someone's three favourite coworkers leave in the same year, they usually aren't far behind. Clients who had a bond with their manager start rethinking whether they stay when that manager goes. And the punchline is that the money you thought you were saving by trailing the market is gone anyway, because now you're paying external premiums across multiple seats plus all the hiring and onboarding costs on top. You cut a corner to juice your margins and ended up paying more than market for a less happy, less tenured team. 

How to step off 

The way off the treadmill is not complicated, it's just unglamorous: proper compensation benchmarking, applied to everyone, all the time. Pay people what they're worth in the market not just when they're shiny and new, but the whole time they're with you, engaged and doing the work. If you're consistently paying a double-digit premium to land external hires, that's not a fluke to be handled with one-off exceptions. That's the market telling you your internal bands are wrong, and the market doesn't care whether you listen. 

Yes, Big 4 Transparency does compensation benchmarking, and yes, I think we're the best solution out there (let's talk if you want to see the data for your roles and markets). But honestly, even if it's not with us, use something. Fix the bands, apply market rates to internal promotions and raises, and step off the treadmill. Your margins will thank you, and so will the people who wanted to stay all along.” 

When I was in practice we had active discussions about this regularly.  Short term gain with long term pain.  If you want discuss any of this further with Dominic find him here on LinkedIn - https://www.linkedin.com/in/dopiscopo/ or by email dom@big4transparency.com