Compensation systems: internally consistent vs market competitiveness?

Choosing the best way to compensate your employees is a difficult and time consuming process that is always changing. One of the main challenges with compensation is trying to stay ahead of the market. Even if you are paying enough now, in five years you could be underpaying your employees and this can cause you to lose your companies competitive edge, its human capital. It is challenging enough to make your companies jobs internally consistent but adding on making them competitive within your companies business market is even more difficult. A second challenge is deciding what pay level policy to implement. If your a company that operates a market lag policy you don’t pay as much to each employee but you are faced with higher turn-over and always having to train new employees. On the other hand if your business uses a market lead strategy you are most likely a differentiator looking for the highest skilled employees you can find. This will cost you more salary per employee but save you on hiring and training costs. Most businesses are just trying to improve their bottom line and participate in market match or market lag pay strategies. They are trying to compensate employees enough to make them stay but not increase payroll costs more than necessary. The toughest part of any businesses compensation system is the fact the market and even the business are always changing and the system needs to constantly be updated.


Martocchio. (2017). Strategic Compensation : A Human Resource Management Approach (Ninth Edition).

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