Companies hire employees from, and lose employees to, various recruiting markets.

A recruiting market is the segment of the national labor market from which a company hires its employees. To define recruiting markets, an organization should identify the relevant industries, company sizes and geographics that represent the employers with which it competes for talented employees.

Different jobs may be benchmarked against different groups of competing employers depending on the recruiting market and role a particular job or class of jobs fills in the organization. Therefore, the job being evaluated is the one to consider to define the relevant recruiting market.

For example, compensation for executive jobs tends to vary according to industry and company size as opposed to geography. Geography, however, is often the primary influence of compensation levels for many lower-paid jobs.

Compensation professionals identify the market range of pay for a company job by analyzing available survey data for the specified recruiting market. Further analysis predicts the market value necessary for the employer to attract and retain employees with the desired qualifications of the job.

A company uses such analysis to arrive at its competitive pay policy and to assess its competitive standing. Competitive standing is a measure of an employer’s compensation levels compared to those employers within its recruiting market. As a fairness criterion, competitiveness (external equity) implies that the employer compensates employees at levels that correspond to prevailing external market rates.