What describes companies that choose to pay below the market rate?

Companies that choose to pay below the market rate are typically referred to as pay followers. This designation indicates that these organizations tend to align their pay scales with market trends but do not lead in setting higher wage rates. Instead, they follow the prevailing compensation benchmarks and often use pay as a strategy to manage costs.

By opting for lower pay, these companies may be trying to achieve a competitive advantage on pricing or looking to allocate resources toward other areas, such as employee training or benefits. However, this strategy can have implications for employee satisfaction and retention, as lower wages might lead to higher turnover or difficulties in attracting top talent.

Pay followers might also engage in other practices to compensate for lower wages, such as providing a positive work culture or offering career development opportunities, to attract and retain employees within the financial constraints they have established.