Lead, Meet, or Lag? Choose Your Path (September 2026 TogetHR Times)

By Joan Klopfer

When organizations establish a compensation philosophy, they're faced with an important choice: Where do they want to position themselves in the talent market?

There are three common approaches. As you read through each path, consider which one best aligns with your organization's goals, workforce needs, and culture.

Path 1: Lead the Market

You decide to pay employees above the market average.

Organizations that lead the market often use compensation as a key differentiator. Higher pay can help attract talent, support retention efforts, and strengthen an employer's reputation in competitive labor markets.

However, this approach requires a thoughtful long-term strategy. Once an organization establishes itself as a market leader in pay, employees often expect that position to be maintained as market rates evolve.

Choose this path if: attracting and retaining talent is a key organizational priority.

Path 2: Meet the Market

You decide to align compensation with market averages.

This is the path many organizations follow because it balances competitiveness with financial responsibility. Employees receive fair, market-based pay while the organization maintains flexibility to invest in other priorities.

The challenge? Compensation alone may not set you apart. Culture, leadership, development opportunities, flexibility, and benefits often become the deciding factors for attracting and retaining great employees.

Choose this path if: your goal is to provide competitive compensation while maintaining long-term financial sustainability.

Path 3: Lag the Market

You decide to pay below the market average.

At first glance, this path may seem unpopular. However, some organizations choose it intentionally. Startups, growing businesses, and mission-driven organizations may direct resources toward innovation, expansion, or other strategic investments instead of higher salaries.

To make this strategy successful, organizations often provide other forms of value such as professional development, flexible work arrangements, meaningful work, incentive plans, or equity opportunities.

The risk is clear: recruiting and retention can become more challenging if employees perceive better opportunities elsewhere.

Choose this path if: preserving cash flow and investing in growth are higher priorities than leading the market on pay.

So, Which Path Would You Choose?

Here's the interesting part: there isn't a universally correct answer.

A compensation philosophy is not about paying the most. It's about aligning your pay strategy with your business strategy.

Organizations that lead the market invest heavily in talent. Organizations that meet the market focus on balance. Organizations that lag the market rely on other advantages to create value for employees.

The real question isn't whether you should lead, meet, or lag.

The real question is: What are you trying to achieve as a business, and does your compensation strategy support that goal?

Because every compensation dollar is an investment. The path you choose determines the return you're hoping to earn.