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Can companies easily develop compensation systems that are both internally consistent and market competitive?

First I wanted to discuss the importance of compensation systems internally. Being able to define the value, characteristics, and compensation is very important for companies to do to maintain employees and uphold a positive working culture. Internal compensation structure is also important because it creates a honest and very transparent working hierarchy. Being able to create a compensation system that are both internally consistent and also market competitive can actually be quite challenging. Challenges of trying to balance this include:

• Hiring Rates: If you are hiring an employee at any level and what you have defined as the correct salary may be significantly lower/ lacking compared to other companies. Although internally you would be staying consistent with your compensation structure comparing that externally to your competitive market you are far behind. This may decrease the amount of people who apply for the job as well as the number of qualified employees.
• Competitive raises: This factor is for people that already employed in the business. If within your internal compensation structure you have raises two years away, not in the future, once something is accomplished, etc. but your competitive businesses are handing out raises and opportunity for growth left and right you have lost your competitive advantage. In turn you may experience a lack of effort from your employees and possibly people leaving the company. It is important when creating your internal compensation structure you create many opportunities for growth and for possible raises (of any type) to ensure your employees stay engaged and your continue to compete externally with the market.
• Adjustability: Companies are always struggling with staying competitive within the market but also staying consistent with compensation internally. Being able to adjust compensation effectively and timely is something that can be very challenging. Having someone on your team that understands what I would call the “wave” effect of giving one person in your business a raise is very important. Although compensation adjustments are not constant you want to stay ahead of the market and make the moves before your employees feel like they have to ask or worse leave.

Work Cited:

“Ensuring Internal and External Pay Equity.” Columinate, https://columinate.coop/ensuring-internal-and-external-pay-equity/.

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