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Compensation and Benefits

HR professionals need to be familiar with how compensation and benefits relate to recruitment and retention. As with many areas we have explored, there are legal and nonlegal dimensions to this discussion.

Sherman Antitrust Act, 1890

The Sherman Antitrust Act of 1890 was a law that was passed in an effort to curb the growth of monopolies. Under the Act, any business combination that sought to restrain trade or commerce would from that time forward be illegal. Specifically, the Act states that

  • Section 1: “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”
  • Section 2: “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.”

The Sherman Antitrust Act is relevant to compensation’s impact on recruitment and retention because an improperly conducted salary survey (or even information attempts to gather data on competitor’s wage rates) can constitute a violation of this Act.

Equal Pay Act, 1963

The Equal Pay Act of 1963 prohibits discrimination on the basis of sex in the payment of wages or benefits to men and women who perform substantially equal (but not identical) work, for the same employer, in the same establishment, and under similar working conditions. (An establishment generally refers to one specific physical location.) Similar to the way in which the Fair Labor Standards Act (FLSA) status is determined, substantial equality is determined by job content, not job titles.

Compensation Strategies

An often-embraced “default” position is that an organization “should” pay more than any other labor market competitor. This is not, however, the only option, nor is it necessarily the best option. Rather, there are three potentially valid strategies to consider, as discussed in this section.

Lag the Market

This is a compensation strategy in which an organization chooses, by design, or simply because of budgetary constraints, to offer total compensation packages that are less competitive than the total compensation packages that are being offered by their labor market competitors. Organizations that lag the market might offset this potential disadvantage by reinforcing and maximizing the intrinsic rewards that it offers—long-term potential growth opportunities, the ability to contribute to a particularly significant organizational mission, and so on.

Lead the Market

This is a compensation strategy in which an organization offers total compensation packages that are better than packages being offered by their labor market competitors. Organizations that lead the market may believe that higher compensation packages will attract higher-performing employees who will, in turn, pay for themselves, and then some. In short, these organizations want the best of the best and are willing to pay for it.

Match the Market

This is a compensation strategy in which an organization chooses to offer total compensation packages that are comparable to the total compensation packages being offered by their labor market competitors. Organizations that match the market make a conscious choice to be “externally competitive” with respect to total compensation.

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