Early last year, Nate Tharp’s boss asked him to sit in on interviews with some job candidates.  

Tharp, who is based in Los Angeles, had been the only web designer on his team for five years. The entertainment company where he was working was in the market for another him.

“They were going to report to the same person that I report to, the same manager. Same title as me, and going to be expected to perform more or less the same work,” Tharp said.

One finalist had great experience, a good portfolio, and, as Tharp learned from an email forwarded by his boss, a salary request that was 50% more than what Tharp was making. “Well, I just kind of thought, ‘That’s an interesting piece of information,'” he said.

Tharp knew his company wouldn’t pay that much for someone in the same job, but whoever would ultimately join the team would likely be making more than he was.

“If I told my fiance, she probably would have told me to march in there and ask for the same,” he said.

Tharp, 39, generally liked his job, but he had been toying with the idea of leaving for a while. So, after waiting out the worst of the pandemic, he marched into a new company that paid 30% more than his current salary, plus a signing bonus.

The tight labor market is forcing companies across a variety of industries to offer higher pay and signing bonuses to attract workers. Starting cashiers at certain McDonald’s can get a $500 signing bonus. First-year investment bankers at Goldman Sachs are receiving more than their second-year co-workers earned in their first year.

Those incentives are putting companies in a squeeze. They need to pay new workers more. But that means they also may need to pay older workers more.

Otherwise, the veterans may quit. Or they may stay and “be a little more hesitant about sharing information, or mentoring, or helping others,” said Tae Youn Park, a professor of human resource studies at Cornell University. Those team-building trust falls could become a much more dangerous proposition.

Academics have a term for this: pay compression. That’s when newer workers start at wages closer to the salaries of co-workers with longer tenures or managers in more senior positions.

Pay-equity issues — some with legal implications — can bubble up quickly, especially in an era when more and more employees are pushing for salary transparency. “When everyone knows about others’ pay, that increases the social comparison in the workplace,” Park said.

Park cautions that rising entry-level wages won’t necessarily roil company culture. Much depends on how much workers trust their company and their boss, and how incentives like signing bonuses are communicated to staff.

In 2015, Dan Price, the CEO of Seattle-based credit-card processing company Gravity Payments, announced he would be raising every employee’s salary to at least $70,000. That included call center employees and sales staff, many of whom were making far less.

Cary Chin was head of human resources at the time. She was in line for a roughly $15,000 pay bump.

“I was thinking, ‘Oh my God, that’s incredible,'” Chin said. “I was happy for my team, I was happy for other people’s teams. And then the second thing was like, ‘Oh shoot, I need to get back to work now.'”

Because her inbox was about to be flooded with job applicants.

Not everyone shared Chin’s enthusiasm. Pundits started placing bets on how soon the company would file for bankruptcy. And a couple of senior employees left.

“The primary message from both of them was I worked really hard at Gravity over several years to make the compensation I’m making, and I earned that,” Chin said.

Six years in, Gravity Payments is still around, and so are most of its veteran employees, like Chin. Many offered to take pay cuts when things got rough during the pandemic.

But for many smaller businesses, the math is just tougher — especially now.

Tim Jordan is the co-owner of Old Soul Co., a coffee roaster and baker in Sacramento, California. It has four cafes around the city.

He is down five back-of-house employees — cooks, bakers, other staff that restaurants across the region are struggling to find.

He’s entertained offering enticements like big signing bonuses, which some of his competitors have done. But it’s an expensive and risky proposition, especially in an industry where profit margins are usually razor thin.

“All of your other chefs are going to know,” Jordan said. “And now you’ve changed your wage base by a geometric factor. How much can you charge for a breakfast sandwich?”

Jordan has raised almost everybody’s wages 10% to 15% since the pandemic hit, including the new baristas Joshua Bell has trained.

Bell makes a base wage of $16 an hour as a veteran barista. He said it doesn’t bother him that new hires are making more than he did when he started.

“It’s just part of the cards that are dealt,” Bell said. “If I want to get paid more, I’ll just work harder. I believe in the karma aspect and what good deeds are done can come back to you.”

Bell also likes the relationships he has with regular customers after five years of making their lattes.

And the tips. He gets to keep most of them.