pay compression. When a new joiner earns as much as, or sometimes more than, a long-standing expert who built the very legacy they’re inheriting, the impact is emotional as much as financial. Trust takes a hit—and culture tends to follow.
The Leader’s Mandate: Value Over Historical Budgets
A recurring pattern is that leaders often lean on “what we paid last year” as a reference point. But the truth is that budgets look backward, while the market for niche talent moves almost week to week.
A common leadership slip today is undervaluing scarce internal skills or placing too much weight on external hires, often at the cost of those who have held the organisation together during demanding periods.
To move forward with clarity, three mindset shifts are essential:
1. Let go of spreadsheet history
Paying market leading rates for niche talent is not indulgence; it is protection against project delays, delivery risks, and knowledge gaps.
2. Treat retention as revenue protection
Replacing high performer costs far more than retaining them—not only in recruitment expense but also in productivity loss and client disruption.
3. Use non base levers wisely
Sign on bonuses, retention awards, and milestone based LTIs (Long-Term Incentives) offer flexibility without locking in inflated fixed salaries.
The HR Imperative: Move From Processes to Fairness
As business models evolve, HR must shift from static annual cycles to a more dynamic, market aware approach.
• Dynamic Equity Audits
A bi-annual assessment helps identify where internal pay has drifted from external benchmarks.
• Reduce the ‘black box’ effect
Employees do not expect perfect equality. What they value is understanding how decisions are made; scarcity, skill value, and business impact.
• Create a dedicated parity fund
Rather than evenly spreading merit increments, setting aside a targeted pool helps address pay gaps for high potential and high impact talent.
The Future: Skill Based Pay (SBP)
A sustainable path forward lies in shifting from tenure-based compensation to skill-based pay.
• Skills become currency
When employees see that capability building translates into compensation growth, fairness becomes predictable and transparent.
• A roadmap for internal talent
Linking skill development to pay progression reduces negotiation driven adjustments and encourages continuous learning.
Managerial Quick Wins: The Hard Conversations That Build Trust
When employees bring up pay differences, many managers are caught off guard. But these conversations often influence trust and retention far more than any policy document ever could. A few practical approaches can help managers handle them with confidence:
1. Focus on Skills, Not Salaries
Shift the discussion towards what the market rewards: scarce skills, relevant certifications, and tangible impact; rather than making it a comparison of who earns what internally.
2. Provide a Clear Path to Parity
If a gap exists, acknowledge it and outline the milestones or capability building steps that could support a market aligned correction.
3. Acknowledge Reality with Honesty
A straightforward message such as: “The market has moved faster than our structure, and steps are being taken to ensure top performers remain competitive,” creates more trust than a polished corporate response.
4. Document and Follow Through
Once the next steps are agreed on, put them down clearly and check in regularly. Consistent follow through shows employees that commitments are taken seriously.
5. Advocate on Their Behalf
Managers have a responsibility to make sure their high impact team members are visible in calibration discussions and compensation reviews. Many employees rely on their manager’s support in these forums.
6. Connect Pay to Impact Stories
Helping employees see how their work ties to outcomes; risks mitigated, revenues protected, innovations delivered, makes conversations more meaningful and less transactional.
The Cultural Reset
Organizations that shift from “How long have you been here?” to “What problems can you solve?” will succeed in balancing both sides of this paradox; the niche talent required for future growth and the internal loyalty that sustains the enterprise.
Ultimately, equity isn’t a calculation on a spreadsheet.
It’s a cultural signal, and in a market where critical skills are scarce, it becomes one of the strongest differentiators an organisation can have.
DISCLAIMER: The views expressed are solely of the author and does not necessarily subscribe to it. will not be responsible for any damage caused to any person or organisation directly or indirectly.
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