The Treadmill of Perpetual Churn
About a year ago I wrote about the loyalty tax and why it's a lose-lose incentive structure. Since then I've had a lot of conversations with firm leaders, and I think the problem around the loyalty tax actually cuts a lot deeper than it seems on its surface.
Today I want to refresh the numbers on where the loyalty tax stands in 2026, and then walk through the treadmill itself, because once you see the full loop it becomes pretty clear why this is such a big issue both for firms and people working at firms.
TODAY'S SPONSOR: ME
This issue covers a problem that's very fixable through proper benchmarking. Is it convenient that Big 4 Transparency happens to do exactly that? Absolutely, and I'm going to take full advantage. But the data above is entirely objective, built on 24,000+ submissions from accounting professionals, very likely including some of your own staff if you're a firm leader reading this.
If you want a feel for how it works, here's a clickable demo and more info here. Fair warning: the demo runs on older data with a slice of the functionality, so the real thing is better. But it'll show you how easy it is to use. And if clicking around a demo isn't your thing, don't be shy, book a call and I'll walk you through it with live data.
First, a refresher on the numbers
Lets start off with a recap for anyone new here: the loyalty tax is the premium paid to external hires compared to internally promoted employees sitting in the exact same seat.
For this update I looked at the trailing 12 months of submissions for US tax and audit professionals, comparing average salaries adjusted for cost of labour so we're not stacking a New York external hire against a promoted manager in Des Moines. Here's what the data shows:
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.
Big 4 Transparency is leaning more into recruiting, and it’s being built entirely based on how I would have liked recruiting to work when I was at the Big 4 firms.
No calls that are a waste of everyone’s timing trying to push you into a role you have no interest in.
Instead, you can opt to have a call where I personally run you through what you should be demanding in terms of compensation should you choose to make the jump or not.
We only contact you about roles that fit your criteria for what you’d be interested in discussing, AND if we place you, you get $1,000 as a thank-you for working with us once you make it past the 3 month mark.
It takes 2 minutes to fill out the form at https://www.big4transparency.com/talent-pool, and then you’re in. Simple as that. The more you share about your interests, the better the chances we get it right, and the more real you are about compensation, the higher the odds you’ll get a match but that’s totally up to you. The desired compensation figure you enter is NOT shared with the hiring firms, it’s just there so we can assess if the firm’s role meets your expectations.
Here are a few roles we’re actively working on.
Tax Manager / Senior Manager - independent, rapidly growing firm in Philadelphia
Business Tax Manager / Senior Manager / Director - Chicago
CAS Manager / Senior Manager - Chicago (open to audit-to-advisory pivots)
Tax Senior - Milwaukee
Tax Senior - Dallas
Audit Manager - Houston
Tax Manager - Houston
Tax Manager - Irving / Los Angeles
Tax Manager (UltraTax experience) - Remote, US
HNW Tax Manager / Senior Manager - Boston or Bedford, NH
Generalist Tax Manager - Remote, US
CAS Manager - Remote, US
Head of CAS - Remote, US
COO / Head of Delivery - Remote, US
Tax Senior Manager / Director - Remote, US
Tax Manager - Ottawa
Tax Staff - Ottawa
Audit Manager - Remote, Canada
Tax Manager - Remote, Canada
Don't see your match yet? Join the talent pool anyway. We'll reach out when the right one comes along, and only when it's actually worth your time.