Attracting, hiring, and retaining top talent is already a tall order, and today’s increasingly tight job market is only making it more difficult. To remain competitive in a modern job market like the one we’re in today, it’s critical for companies to review all of the ways they’re attracting talent, and of course, compensation is high on that list.

Every company has a different way of structuring their compensation packages and pricing out the various positions in their organization. Multiple factors come into play, including the market value of each position, the number of employees in the organization, budgetary restraints, and company goals. Before you can determine what to offer your employees, however, you need to decide what your company’s compensation philosophy is.

Common Compensation Philosophies: Lead, Match, and Lag

Most organization’s compensation structures fall under one of three categories: lead, lag, or match. As you can surmise from the names, these three methods of compensating employees represent high, middle, and low-end pay structures.

Lead companies choose to pay higher wages to their employees and offer competitive benefits packages to bring in the best talent available. Companies with this compensation philosophy are generally in innovative or tech-based industries. Start-ups sometimes choose this pay structure as a way to jumpstart their company’s success early on and gain high employee loyalty.

Match companies choose to meet the average wage expectations for each position based on their industry and location. Organizations that choose to offer comparable benefits and compensation generally strive to differentiate themselves with employee engagement programs. Many businesses choose the match compensation philosophy of compensation.

Lag companies generally offer wages that are slightly below the average for their industry and area. Businesses that use this approach tend to compensate for lower paychecks by providing better benefit packages and perks. Companies with lower wages may offer bonuses such as free onsite gym memberships, flexible work hours, and an enjoyable work environment.

Market Pricing Your Positions

Once you’ve determined your company’s compensation philosophy, you still need to know what the market value of your positions is. Market pricing positions involves finding relevant data for similar companies and positions in your area as well as determining your employees’ current duties.

1. Gather Internal Data

Before you run out to gather market pricing information, you should know exactly what each person in your company is already doing, as well as the positions you’ll need in the near future. This is where robust, detailed, accurate, and up-to-date job descriptions come in.

Begin by surveying your current staff members and gathering detailed information about what their jobs entail, who they interact with, and who they report to. The goal is to have an accurate job description for every existing position in your company. These job descriptions will allow you to compare your current employees’ positions to comparable jobs available in the market.

2. Gather Reputable External Data

The Bureau of Labor Statistics publishes information and wages for over 800 jobs across industries and areas. Use this and other resources—such as compensation surveys—to determine wage ranges for positions within your company.

3. Apply Compensation Philosophy

Once you have information about each job within your organization, as well as data about compensation for comparable jobs in your industry and area, you’re ready to apply your compensation philosophy. Add information to each job description you’ve created that details the low, middle, and high range of compensation for each position in your company to guide merit-based pay raises each year.

4. Repeat As Necessary

Finally, remember that this process isn’t once-and-done. Your HR department should revisit salaries and compensation packages on a yearly basis and review all relevant data to stay competitive.


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