In times of economic uncertainty, organizations are paying increasing attention to the management of their often-tight budgets. Payroll costs, for example, represent a significant proportion of operating costs, and must be rigorously managed to maximize the impact of available resources.
One of the best practices for structuring these expenses is the implementation of a well-defined salary structure. This not only optimizes the use of budgets but also supports internal and external equity in the compensation offered, thus contributing to the attraction and retention of talent.
However, establishing a salary structure is more than simply evaluating positions and then grouping them into classes: often this exercise is carried out in conjunction with a study of market data. A crucial factor often overlooked in this study is the choice of the right percentile as a reference point. All too often, HR teams adopt the median (50th percentile) without analyzing whether this positioning is truly aligned with the company’s financial capacity and overall compensation strategy.
The importance of the reference market and strategic positioning
To ensure that the development of the salary structure is aligned with the market, it is essential to identify a relevant reference market. This market can be defined according to several criteria including:
- Organization size: The size of an organization typically influences its financial capacity and organizational complexity. The use of this criterion ensures relevant comparisons when analyzing data.
- Industry: Certain sectors, such as technology or finance, generally pay above the market because of the high demand for specialized talent.
- Geographic location: The cost of living has a major influence on salary competitiveness. Local compensation trends also vary according to industry and workforce availability. For example, a company based in Bromont will not necessarily pay the same wages as one in Val-d’Or.
Once this market has been defined, the organization must position itself strategically according to its financial reality. This is where the choice of reference percentile comes into its own.
Rethinking market positioning
It is common practice for many organizations to target the 50th percentile (median) of the market to establish their salary structure. This approach, although widespread, can pose a problem if it is not in line with the company’s financial resources.
If a company adopts the 50th percentile when it doesn’t have the means to sustain it over the long term, it risks:
- Encounter budgetary difficulties, leading to salary freezes or restrictions on other benefits;
- Create unsustainable expectations among employees;
- Frustrations between the talent acquisition team and managers, as the gap widens between the salaries offered to candidates and those offered to employees.
An appropriate approach is to adjust positioning by combining several elements of total compensation.
A global approach to maximize attractiveness
Please note that the idea is not to voluntarily pay below the market, but rather to adopt an approach that is consistent with the company’s financial capacity.
Faced with severe budget restrictions on payroll management, an effective solution is to align base salaries with a lower percentile, such as the 25th percentile, while balancing the employer offer with other components of total compensation.
For example:
- Base salary: Positioned at the 25th percentile of the market.
- Vacations: Positioned at the 75th percentile to offer more days off than the competition.
- Benefits: Positioned at the 75th percentile with more generous coverage.
- Flexible working: Offer more flexible working conditions than the current trend (telecommuting, compressed work weeks, etc.).
This approach enables the organization to remain competitive without jeopardizing its financial viability.
Positioning aligned with ability to pay
By adopting this approach, a company can:
- Offer competitive total compensation without necessarily aiming for the 50th market percentile for salaries.
- Attract and retain talent by highlighting differentiating advantages.
- Optimize the use of its budget while maintaining a high level of employee satisfaction.
- Make remuneration decisions in line with its actual financial capabilities.
The aim is to strike a balance between competitiveness and financial feasibility, rather than blindly conforming to market standards.
The central element of an effective compensation strategy is not to achieve arbitrary market positioning, but to use the available data optimally to structure an offer consistent with one’s financial resources and organizational strategy.
At Lussier, we have a team in place dedicated to this exercise to ensure a rigorous structured approach aligned with organizational realities.
Rather than focusing on what we can’t offer, the aim is to build a competitive value proposition by capitalizing on the company’s strengths. This means:
- To align the salary structure with its budget rather than aiming for a standardized market position.
- Intelligently use market data to identify differentiation levers for total compensation.
- Focus on what really matters to employees, balancing pay, benefits and working conditions.
- Adopt a pragmatic and sustainable approach that ensures financial viability while remaining attractive to talent.
At the end of the day, well thought-out compensation is less about conforming to market practices than it is about making strategic use of available resources. Focusing on what you have, rather than what you don’t, creates a compensation structure that truly supports the growth and sustainability of your organization.
Do not hesitate to contact us, we will be happy to help you with this strategic exercise.
