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So in a bubble market where salaries are potentially inflated, and then the market crashes, yet salaries stay the same? Isn't this a problem?



Realistically it’s hard to peg a salary to “market rate,” particularly when one has gotten merit-based raises on top of that. I think all employees should get a cost-of-living adjustment, tagged to inflation. So if inflation is 3% in a year, everyone gets 3% right off the bat.

I’m torn in that I think the flip-side makes perfect sense. If there is 1% deflation, why shouldn’t employees’ wages be cut by 1% across the board? At the same time I feel that’s the quickest way to see half your development team leave, even though we’re talking about less than the cost of a nice dinner each month.

In an environment where the market crashes and it dramatically affects revenue for a business, everything has to be on the table, from layoffs to hiring and raise freezes to voluntary cuts in pay (often to save the job). If you make $100k a year at “market rate” and there’s a huge crash, and you’re given the opportunity to cut your own pay to $80k or try to get a job for $60-90k, what do you do? It’s a tough call for anyone.


If there was a 1% decline, would it work to not adjust pay but record this negative inflation so that next year if it's +2% then the employees only get +1% raises? If the economy continues to go down then this won't work, but it would handle a short bump fairly without actually reducing anyone's pay. Would people still leave?


Why is it expected to get inflation-based increases with deflation-based reductions?


If you want to retain staff, you can't reduce their pay. So, if retention is a priority, you are stuck with those salaries.

The question becomes what you pay new hires. On one hand, the prevailing salary is much lower, and the company can save money. However, people talk and new employees will eventually discover the pay disparity which will kill morale.


If you want to retain staff, you can't reduce their pay. So, if retention is a priority, you are stuck with those salaries.

Even if nowhere they could jump ship for would pay them their old salary either?




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