Every company wants to hire and retain exceptional talent. But how competitively do you actually need to pay to make that happen?
The conventional wisdom is clear: lead the market with pay at the 75th percentile and beyond, and you'll win the talent war – great employees will choose you over competitors, stay longer, and perform better, helping the business achieve its goals.
But market-leading salaries come with significant costs: payroll expenditure, more pressure on runway, and questions about long-term financial sustainability.
So is a lead-the-market pay strategy actually worth it?
To investigate, we analysed employee departure data from Ravio's compensation database, tracking retention patterns across different base salary target percentiles. The findings reveal that the relationship is far more nuanced than most companies realise – and where you invest in competitive salaries matters just as much as how those salaries are.
A lead-the-market pay strategy means positioning your employee salaries above the market median – typically targeting the 75th percentile or higher.
It’s an approach that top tech players like Netflix use to compete aggressively for the best possible talent, but that doesn’t mean it’s the right approach for every company.
The ability to retain great employees is seen as one of the top benefits of a lead-the-market pay strategy – with compensation a key reason that employees choose to move roles, market-leading salaries reduce the risk of them looking elsewhere for financial reasons.
We analysed the share of employee departures in Ravio’s compensation database across three pay groups: below market (<45th percentile), at market (45-55th percentile), and above market (>55th percentile).
The headline finding? Yes, market-leading pay does improve employee retention.
Employees with market-leading (>55th percentile) have the lowest share of departures at 14% of employees, whilst employees with below market (market lagging) salaries have the highest share of departures (15%) – so there is a statistically significant link between paying above market and employee retention.
Then we looked at departure timing too.
We can also see that employees who leave their roles early (0-12 months) predominantly have market lagging salaries (<45th percentile). This suggests that below-market pay presents immediate retention risk and heightened turnover for new hires.
Whilst overall market-leading pay does improve employee retention, the impact isn’t the same across-the-board.
For instance, when we break down the analysis by exploring employee tenure lengths via survival analysis (modelling the probability of an employee remaining at a company over time) per career track, we can see that the pattern isn’t consistent:
So, whilst market-leading salaries do increase retention for Support and early-career Professionals, it makes no difference for established Professionals or Managers.
Perhaps other factors, like equity compensation, career progression opportunities, or strategic influence, matter more than base salary positioning for senior talent.
So, whilst market-leading salaries do increase retention for Support and early-career Professionals, it makes no difference for established Professionals or Managers.
Perhaps other factors, like equity compensation, career progression opportunities, or strategic influence, matter more than base salary positioning for senior talent.
"Competitive salaries are more powerful for retention than ever. Employees know well-paying roles are scarce, and the risks of switching – new probation periods, less stable companies – make staying put more attractive. My advice: identify your top 20% of critical roles where rehiring would be toughest, and invest your above-market pay there. Be strategic rather than trying to pay everyone premium rates."
HR Consultant and Strategic Advisor
Market-leading pay isn't a one-size-fits-all solution. The right approach depends on your company's strategic priorities, financial position, and what you're trying to achieve with compensation.
Before deciding on a target percentile, get clear on the 'why' behind your approach.
Matt McFarlane, Director at FNDN, calls this being "market-informed" rather than market-driven: "The company's philosophy on compensation and their financial position are equally important inputs as the market data, but I see so many startups skip that step and head straight to the data. The most effective approach is a marriage between market data and company context."
He particularly emphasises the importance of grounding compensation decisions in your specific business reality: "I always spend a lot of time deeply understanding the mission, the culture, the kinds of people that are going to help deliver on it, and the current situation from a financial perspective.
“You want your compensation decisions to be strategic – these are the calibre of people we need to hire to hit key milestones based on our business model, it will cost us this, and it will have this impact on our P&L."
Ask yourself:
"Every company should identify their own business-critical roles and pay them at P60 or P75. The days of paying everyone at median are over – that's a recipe for losing your key talent. Whether it's engineering at a tech startup or operations at a logistics company, invest in the roles that drive your success."
Senior Compensation Manager at Bolt and Co-founder of Cohorts
Can you truly afford 15-25% higher payroll costs compared to market median? More importantly, can you sustain that positioning if growth slows or funding becomes tighter?
Market-leading pay is easier to implement than maintain – so getting realistic on payroll costs, and considering whether it actually makes sense long-term, is key.
Leading the market on base salary doesn't mean neglecting other total compensation levers.
In fact, many competitive employers combine market-leading pay with other market-leading elements e.g. quite compensation or benefits – Buffer, for instance, combines market-leading salaries with highly desirable employee benefits like fully remote working and a 4-day working week.
Consider how you can differentiate through:
Market insights: What market positioning do most tech companies use for base salary?
If you decide it’s right for your company, implementing a lead-the-market approach requires careful planning and ongoing commitment. Here are the key steps:
You can't lead the market if you don't know where the market actually is – and getting the data is a vital first step to understand the true implications for ongoing payroll costs.
Access to reliable compensation benchmarks is an absolute must, and the provider you use needs to:
Articulate why market-leading pay makes sense for your organisation:
Building structured salary bands – rather than making one-off pay decisions – is critical for consistency whatever your chosen pay strategy is.
So, once you’ve defined that strategy, reflect it in your salary band structure through aligning band midpoints with your chosen target percentiles.
For example, if you're targeting the 75th percentile for your Software Engineering function then £77,900 becomes your band midpoint for your P3 Software Engineers in the UK (as per Ravio benchmarking data, November 2025).
If you already have a salary band structure and you’re moving to a lead-the-market pay strategy, you’ll also need to decide how to bring existing employees in-line – will you immediately make salary adjustments to ensure everyone is paid at the new target percentile, or will that be a phased process over time e.g. during the next two compensation reviews?
Explaining your compensation philosophy and how salaries are determined to all employees is, perhaps, the most important part of setting a pay strategy – especially if motivation and retention are core aims.
When people understand how their pay is decided, that it's competitive (highly competitive, in the case of a lead-the-market strategy) and fair, and that this will be maintained over time through regular compensation reviews, it builds trust and reduces anxiety.
If you're transitioning to market-leading pay from a previous approach, it’s important to be clear about why this is happening, the timeline, and what employees can expect – this is something employees will inevitably be very invested in.
Leading the market today doesn't mean you'll lead it in 12 months.
Talent and compensation markets move constantly, and without regular maintenance, your "market-leading" salaries can quickly become average.
The key pieces to build into your systems and processes are:
A lead-the-market pay strategy positions employee salaries above the market median – typically targeting the 75th percentile or higher. Companies using this approach aim to attract and retain top talent by paying more competitively than most of their talent competitors.
A lag-the-market pay strategy means paying below market median (50th percentile). Companies using this approach often offset lower base salaries with other compensation elements like generous equity grants, exceptional benefits, mission-driven work, or strong career development opportunities.
Market-leading pay means compensation positioned above the 50th percentile of market benchmarks, making you more competitive than 50% of companies hiring for similar roles.
Companies typically choose market-leading pay strategies when:
According to Ravio's retention analysis, employees with market-leading (>55th percentile) have the lowest share of departures at 14% of employees, whilst employees with below market (market lagging) salaries have the highest share of departures (15%) – so, broadly, higher compensation improves employee retention.
The compensation-retention link is strongest for Support functions and early-career Professional roles (P1-P2), but diminishes for Senior Individual Contributors (P3+) and Management roles, where other factors like career development and strategic influence may matter more than base salary positioning.
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