Using our heads to solve your Reward challenges.
This topic is incredibly relevant and feels particularly charged at the moment, especially with the skills volatility we're seeing in tech, commercial and specialist roles. CFOs are concerned about cost. HR is worried about fairness. Hiring managers just want the role filled. And Reward is stuck in the middle holding the spreadsheet.
"We benchmark to market."
"We maintain internal fairness."
Most organisations genuinely try to do both. And that's where the tension begins. Because markets move. Fast. Certain skills become "hot." Recruitment pipelines tighten. Candidates have options. Offers have to be competitive.
So, you benchmark externally, as you should. But when the offer lands, something uncomfortable can happen. New hires sometimes come in on higher pay than loyal and competent employees doing similar roles. Long-tenured staff start to notice the gap. HR scrambles to "fix compression." And suddenly what began as a commercial hiring decision becomes an internal equity issue and at worst an equal pay risk.
That's the invisible cost of market movement. Externally driven pay decisions are rarely deliberately underhand. They are usually reactive. You need the capability. The market rate is higher than it was 12 months ago. The business signs it off. But internal pay structures don't move at the same speed.
Salary review cycles are annual. Budgets are pre-agreed. Increases are often modest and spread thinly. Managers are cautious about differentiation. So, the gap widens quietly. Until someone talks, and when they do, the narrative becomes:
"I've been loyal."
"I deliver consistently."
"Why is someone new earning more than me?"
That's when engagement takes a hit. Compression isn't just a spreadsheet issue. On paper, pay compression looks like a maths problem. In reality, it's emotional. It's about perceived value and fairness and whether performance is genuinely recognised.
When organisations try to fix compression reactively with ad-hoc adjustments, off-cycle increases or retention premiums etc, it can create further distortion. Costs creep up. Relativities blur. Trust wobbles. And sometimes the people you were trying to retain leave anyway. Then the cycle starts again.
So, what's the real debate? This isn't a choice between internal equity or external competitiveness. It's about being clear on:
Because silence creates stories. And stories erode confidence faster than data ever will.
What often goes wrong in many organisations:
So, you end up trying to defend market-led hiring decisions inside a system that wasn't designed to flex. That's exhausting, and expensive.
The uncomfortable truth is that if you don't consciously design how internal equity and market pressure interact in your organisation, the market will design it for you. And you may not like the outcomes.
Round and round it goes.
When this tension keeps resurfacing, it isn't coincidence. It's feedback. Feedback that your reward architecture might need to evolve.
At Reward Heads, we work with organisations to help them make this work in a way that is commercially grounded, culturally aligned and practically manageable. Internal fairness and external competitiveness shouldn't be enemies. They just need clarity, structure and intent.
If you would like to explore how we can help you navigate this debate in your organisation, please reach out to rewardsolutions@rewardheads.co.uk
Claire Williams, Consulting Director - Reward Heads