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Meet the Market Compensation Strategy

Developing a compensation strategy and determining your company’s strategy in the market can seem like an overwhelming process. Our goal is to make it simple and take some of the confusion out of that process as we discuss a “Meet the Market” strategy.

What Is a Meet the Market Compensation Strategy?

There are three main compensation strategies: lead the market, lag the market and meet the market. We will be discussing meet the market in this article.

Meet the market compensation strategy revolves around doing market research and averaging your workforce’s pay so that it essentially matches the middle of the market.

This doesn’t mean that every one of your employees is making the average salary for a particular role. It means that you are averaging that middle point. You will have employees that are making more and employees that are making less.

Generally, in a meet the market plan you will offer rapid increases to those who are making less than the middle of the market and then slow down the increase amount to avoid getting too far ahead of the market.

Meet vs Lead vs Lag the Market

The compensation strategies that most companies employ are tied into one of three ideas. In a lead the market strategy, companies target the 75th percentile of a pay range for a particular role. In a lag the market strategy, companies aim for the 25th percentile for a particular role. A meet the market strategy is meeting the 50th percentile.

What Are the Advantages and Disadvantages of a Meet the Market Compensation Strategy?

There are many advantages and disadvantages of a meet the market strategy. We can’t detail all of them, but we will highlight some of the important themes.

Advantages

  • You will know that your employees are being paid fairly for their experience and expertise in their particular field and job.
  • Your company won’t drag behind the market, but you aren’t paying top dollar either.

Disadvantages

  • In competitive fields, such as developers, employees will expect to be paid at a leading price. That means you may struggle finding the talent you are looking for.
  • You may not be able to afford other benefits or perks that keep your employees engaged.

How To Know if a Meet the Market Strategy Is Right for Your Organization

A meet the market is a fairly safe bet for your organization, but there are some sure fire ways to know that your organization is ready for a meet the market strategy!

  1. You offer average to above average benefits. Your benefit options are neither poor nor extraordinary.
  2. On your engagement survey, pay isn’t consistently in the top 5. If pay does appear in your top 5, you may need to consider pursuing a lead the market strategy.
  3. You are looking to reduce or minimize your turnover rate. If you are currently seeing high turnover, pay could be a factor. It may be time to look at your strategy. You can learn more about retaining your employees here.

Why You Should Consider Mixing Compensation Strategies

You may have certain roles that you need to lead the market and others that you can lag the market. Just because you choose one compensation strategy doesn’t mean that you are stuck with that strategy. It is highly recommended to mix and match strategies so that you can meet all of your organization’s needs.

Questions You’ve Asked Us About Meet the Market Compensation

How can I know what market compensation is for a role?
There are many different types of surveys available for benchmarking pay for certain roles. There are free surveys, like the ones supplied through the department of labor, and there are options you have to pay for, like a benchmarking software from Salary.com. Either way, you can get specific information for a role and get data regarding the percentile ranges for those roles.
Do I need a defined compensation strategy?
It depends. It’s okay to have a fluid compensation strategy, but it’s also important to define what the strategy looks like so you know how you are going to pay each role within your organization.
Nick Staley

Nick Staley

Nick is a certified HR professional holding an SPHR from HRCI. He is passionate about the employee experience and creating some of the top workplaces in Utah. He has built HR departments from the ground up as well as working for large companies. When not working, Nick enjoys spending time with his wife and three kids and flying airplanes.

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