Patrick Simmons
VP Global Compensation & Benefits
Ecobat
Episode 318
Market Pricing Is a Trap: Unlock True Compensation Fairness
Current chapter: Built by People podcast features insights from world's top HR leaders
Built By PeopleFebruary 3, 2025 · 18:03
Thesis
“While market pricing is a useful baseline, an over-reliance on it can create misalignment; effective compensation requires combining data with leadership judgment, individual performance differentiation, and transparent communication to foster trust and ensure fairness.”
Show notes
Market pricing is probably the most widely used and most widely misunderstood tool in compensation management. Patrick Simmons has spent 30 years watching organizations treat a useful baseline as a binding rulebook — and he's direct about why that's a problem.
As VP of Global Compensation and Benefits at Ecobat, Patrick brings a rare combination of technical depth and philosophical clarity to the most sensitive topic in people management. His core argument: "Market pricing simply helps define a reliable baseline. While it's a useful source of competitive pay data and decision-making, it's descriptive, not prescriptive." Survey data tells you what the market is doing on average. It doesn't tell you what the right decision is for a specific person in a specific role with a specific set of experiences. That's a leadership judgment call — and organizations that abdicate it to benchmarks end up with misalignment that data alone can't fix.
Patrick draws a useful division of responsibility: HR should focus on how positions are valued based on scope and complexity, while leaders focus on how individuals are paid based on experience and performance. Those are separate conversations that often get conflated — and the conflation produces pay systems that are technically compliant but practically dysfunctional. He's also one of the more thoughtful practitioners on pay transparency: the laws are here, they're expanding, and companies that treat transparency as a compliance exercise rather than a trust-building opportunity will find themselves on the wrong side of candidate and employee expectations in a very short time.
- Market pricing as a baseline, not a prescription — why benchmark data informs but doesn't determine good compensation decisions
- The HR/leadership division of pay responsibility — how positions should be valued vs. how individuals should be paid
- Differentiating pay for individual performance — the leadership judgment required to reward contribution, not just comply with ranges
- Pay transparency as a trust strategy — how to build compliance into a genuine competitive advantage with candidates and employees
- Global compensation strategy — designing pay programs that function coherently across multiple countries and markets
- Intellectual rigor in compensation decisions — interpretation over observation, and the discipline to defend decisions with clear rationale
Built by People is sponsored by Previ, the private pricing network that saves employees an average of $2,200/year on essentials like cell phone and auto insurance — free for companies to launch and maintain.
What you'll take away
- 1Market pricing provides a reliable baseline but is descriptive, not prescriptive; it's an estimate that requires leadership judgment and shouldn't be the sole determinant of pay.
- 2HR should focus on how positions are valued (scope/complexity), while leaders focus on how individuals are paid (experience, capability, performance) to avoid the 'march to the middle' phenomenon.
- 3Pay transparency is a growing necessity; companies must comply with regulations and proactively communicate pay expectations to employees to manage the transition effectively.
- 4Successful pay transparency requires leaders and HR to be prepared to explain and defend pay decisions based on clear factors like performance and experience, as transparency removes previous 'cover'.
- 5Global compensation strategies should be built on a core foundation of guiding principles, adapted with flexibility to local country differences, and supported by strong relationships with in-country leadership.
What most organizations get wrong
- •Over-reliance on market pricing, while common, is flawed and can lead companies to change their 'identity' to fit desired outcomes, creating misalignment with their business.
- •It's a misconception that competitive pay means aligning with the midpoint of a pay range; individual experience and capability warrant differentiation in pay.
- •The primary resistance to pay transparency will likely come from some leaders and a segment of HR (the 'we've always done it this way' crowd), not generally from employees who tend to accept it.
In Patrick's words
“Market pricing simply helps define a reliable baseline. While it's a useful source of competitive pay data and decision-making, market pricing is descriptive, not prescriptive.”
This quote highlights the inherent limitation and true purpose of market pricing as a reference point rather than a definitive rule.
“The answer to that question can easily be, what do you want the market survey to say?”
This playfully points out the subjectivity and potential for manipulation in interpreting market survey data based on desired outcomes.
“But it is incorrect to believe the way to pay competitively is to pay at the middle of a pay range or at a calculated market value.”
This challenges the common 'march to the middle' approach, emphasizing that competitive pay should account for individual differences.
“Some leaders will resist pay transparency because it exposes their decisions. Leaders will be forced to explain and defend their decisions. There will be no more cover.”
This identifies a key hurdle in implementing pay transparency, focusing on the accountability it imposes on leadership.
“It's not what you look at that matters, it's what you see.”
This parting advice emphasizes the importance of deeper interpretation and critical thinking beyond superficial observation in complex environments.
The problems this episode addresses
- •HR leaders struggle with the over-reliance on market pricing data, which can be inconsistent, subjective, and lead to pay policies misaligned with business strategy.
- •Companies face challenges in moving beyond a 'march to the middle' pay philosophy to differentiate compensation effectively based on individual performance and experience.
- •Managers are often unprepared to have transparent conversations about pay, explain compensation decisions, or defend them in an era of increasing pay transparency laws.
- •HR departments encounter internal resistance and discomfort when transitioning from guarded to open pay practices, requiring significant change management.
- •Organizations operating across multiple countries find it difficult to create unified compensation strategies that respect local norms, customs, and regulations.
In this episode
Built by People podcast features insights from world's top HR leaders
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In the US, we live and work in a time of mixed pay transparency
The Case for Pay Transparency
How do you create compensation strategies that work across multiple countries and markets
How to Create Compensation Programs that Work across Country and Markets
Patrick McAfee shares his advice on working in today's increasingly complex world
Patrick Downey on Built by People
Topics covered
Organizations and entities mentioned
Full transcript
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