What is the primary strategic risk of a Lagging the Market compensation strategy?

• A. High profits and low costs.
• B. Increased brand recognition.
• C. Faster hiring.
• D. High turnover, low morale, and a negative reputation, which can only be mitigated by a very strong culture or exceptional non-monetary benefits.

Answer: (D)

When you lag the market on pay, employees feel they’re not being fairly valued relative to peers. That makes retention and attracting talent a major challenge, so turnover rises as people seek better offers elsewhere. The cost of replacing skilled workers, plus the dip in morale and engagement as the workforce feels undervalued, can undermine performance and slow progress. The employer brand can suffer too, making future recruiting even harder. Strong culture or exceptional non-monetary benefits can help offset this, but they’re not reliable substitutes for market-competitive pay, so the primary risk remains high turnover, low morale, and a negative reputation.