Paying People 'Competitively' Means Nothing If You Don't Know What the Market Actually Looks Like
One of the most common things we hear from small business owners when we ask about their compensation strategy is: “We pay competitively.” My follow-up question is always: compared to what?
Compensation strategy is one of those things that feels more straightforward than it is. You look at a few job postings, you see what people are asking for, you make an offer that feels reasonable and you call it done.
The problem is that approach leaves you flying mostly blind.
Job posting salaries are not market data. They’re what companies hope to attract candidates with, not necessarily what those candidates end up being paid. They vary wildly by company size, industry, geography, and how long the posting has been up. Using them as your primary benchmark is like using Zillow to determine what your home renovation should cost.
Real compensation benchmarking uses salary surveys, industry data, and structured job leveling to understand what the market actually pays for a specific role, at a specific level, in a specific geography, at a company of your size and stage.
When you don’t have that, a few things tend to happen:
You lose offers to competitors who have done the work. If your numbers are off, candidates will sense it or they’ll find out and decline.
You create internal equity problems. When hiring is done ad hoc, you end up with people in similar roles earning very different amounts, often based on who negotiated harder or who came in during a different market cycle. That erodes trust when people inevitably find out (and they will).
You overpay in some areas and underpay in others. Without a structure, there’s no way to know which is which.
Building a compensation structure doesn’t have to be a massive project. Even a basic framework job levels, pay bands, a clear sense of where you want to position relative to the market gives you something to anchor decisions to. It makes offers faster, conversations easier, and retention more predictable.
A few things worth knowing:
Where you want to position matters. Targeting the 50th percentile is different from targeting the 75th, and your choice should reflect your business reality and talent strategy not just what you can afford in the moment.
Total compensation is more than salary. Equity, benefits, flexibility, and growth opportunity are all part of the picture, especially for early-stage companies.
Pay transparency is increasingly expected. Knowing your structure in advance of being asked about it is much better than scrambling to answer.
You don’t need a comp consultant to think strategically about compensation. But you do need more than a gut feeling and a few job postings.
→ If you’re building a team and you haven’t thought through your compensation philosophy, that’s a good place to start. I work with small businesses to build comp structures that are fair, defensible, and tied to their actual talent strategy.