Stuck in the Middle With You
One of the most common questions in compensation is, "What is happening in the market?” In essence we asking what is everyone else doing?
It's a reasonable question. Nobody wants to be too creative or too far out front. Market data provides comfort and reduces uncertainty. It gives leaders confidence that their decisions have been pressure-tested and are not wildly out of step with peer practice.
The problem is that if everyone is looking at everyone else, eventually everyone starts making the same decisions. There’s a term for that: herd mentality, which I’ll discuss in a future publication. But the purpose of today’s newsletter is market data, what it communicates to employees, and how organizations should use it more intentionally.
Let’s first clarify what is meant by “the market.” In compensation, the 50th percentile is often treated as the market. It represents the middle of the data set: roughly half of the market is above it and half is below it. Or, to borrow the line, “clowns to the left of me, jokers to the right…”
The nice thing about the middle is that it limits the influence of outliers, which makes it useful when defining standards. Useful is not the same as strategic.
Your strategy may actually depend on knowing where the outliers are. In some cases, you may need to be an outlier yourself. Doing what everyone else does is no way to distinguish yourself.
It sounds absurd but consider how your go-to market strategy compares to your compensation strategy. Are you really spending millions of dollars advertising about why customers you while at the same time making compensation decisions around what everyone else is doing to attract, retain, motivate and engage employees?
Focusing on average is rarely a winning strategy Keeping Talent.
Every reward is a choice.
Despite what managers often believe, money isn’t always the clean motivator they assume it to be. Employees want much more than a competitive salary. Total Rewards is more than base pay and benefits. It includes incentives, recognition, wellness, growth, flexibility and the broader employee experience.
For many organizations, Total Rewards is one of the largest operating investments they make. That is why Total Rewards must have a seat at the table in strategic planning discussions.
Budgets are finite. Resources are limited. Organizations cannot be exceptional at everything, but they can decide where they want to be exceptional. Knowing where you want to stand out helps you allocate resources appropriately.
That allocation starts with your compensation philosophy. These are more than words. Your compensation philosophy identifies your values, priorities, and trade-offs. Your budget needs to fund what your philosophy states.
Elite teams do not build championship rosters by treating every position as equally critical. They decide where they need to win. Compensation strategy should work the same way.
Choosing to lead in one area means choosing not to lead somewhere else. Choosing to invest heavily in critical talent means accepting trade-offs in other parts of the organization. Compensation strategy is ultimately about deciding where you want to win and where you are willing to be merely competitive.
Strategy is about deciding how to build a team that Wins Together. The talent you seek needs to value the rewards you offer.
The organizations that use market data most effectively are not the ones that blindly follow it. They are the ones that use it to make deliberate choices about where they will differentiate themselves.
Defining Your Priorities
I just spent time challenging the 50th percentile. To be clear I’m not saying that it’s inherently bad. The issue isn’t the data, but rather how you use it.
Most employees believe they are underpaid. Equity theory, one of the many psychological theories that explains workplace behavior, speaks to how employees compare themselves to others. Showing them where they align to the market can create a more grounded perception of fairness, justice and transparency.
That is one valuable use of market data. But there are many others.
I once worked with a company that had a very aggressive Total Rewards package. How aggressive? Imagine cutting every employee’s short-term incentive target in half and still producing target cash above the 75th percentile. They were so focused on leading the market that they left the market behind and lost track of it. The company was not spending wisely.
This is why compensation philosophy matters. By clearly articulating a position relative to the market, an organization can explain how it intends to distinguish itself from others by allocating resources for a specific purpose and outcome.
To maintain clarity, use common positioning terms like:
Lead the Market for where you want to stand out
Meet or Track the Market where you want to remain competitive without constantly chasing movement
Follow the Market or Lag the Market where a reward is a lower priority or where other parts of the employee value proposition carry more weight
For example, an organization may lead the market for highly specialized technical talent because innovation is central to its strategy, meet the market for most professional and operational roles to preserve equity and discipline, and lag the market where talent supply is abundant or where flexibility, development, or mission creates a stronger value proposition than cash alone.
None of these choices are inherently right or wrong. But without these decisions expressly stated, compensation becomes a series of disconnected actions rather than a coherent strategy.
Without clear choices, decision makers cannot Lead Clean. They cannot prioritize resources against business strategy. HR reacts case by case. Managers chase exceptions. Finance sees only cost. Employees receive mixed messages about how and why they are paid.
When you have a clear compensation philosophy, supported by leadership and reinforced by defined pay practices, you Grow Smart.
Two programs may cost the same amount, but they may not create the same value. The better investment is not always the one closest to the market. It is the one most closely aligned with the organization’s strategy.
The specific choice matters less than making a deliberate choice.
What matters is that the choice is intentional.
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