Below-Market Pay and Why Good Employees Leave

The finding: pay tops the list

When finance leaders are asked why their best people walk out the door, the answer lands on compensation. According to SHRM, chief financial officers said the top reason good employees quit is inadequate salary and benefits. That is a notable source. CFOs are not the people running exit interviews or fielding engagement surveys, so this is not HR framing the problem in HR's favor. It is the budget owners themselves naming pay as the leading cause of regretted attrition.

For a people leader, that alignment matters. When both the HR team and the finance team point at the same root cause, you have a rare shot at a shared business case. The disagreement usually isn't whether pay drives quits. It's whether the company can afford to fix it. This guide is about closing that gap.

What "below-market pay" actually means

Below-market pay is not the same as low pay. An employee can earn a salary that felt fair the day they were hired and still be underpaid two years later, because the market moved and their pay didn't. Good employees are the ones most exposed to this. They are the people other companies want, so they see competing offers, hear what peers earn, and can price their own worth with confidence.

Three gaps tend to open up quietly:

• Market drift. External salaries for a role rise, but your internal bands stay frozen. The longer someone stays, the further behind they fall.
• Compression. New hires get offered current market rates while loyal, higher-performing veterans stay on old numbers. Tenure ends up penalized.
• Total-rewards blind spots. SHRM's finding names salary and benefits together. A base salary that looks competitive can still lose to a rival's health coverage, retirement match, or paid leave.

Why your strongest performers leave first

Below-market pay does not push people out evenly. It selects for your best. Your top performers have the most external options, the clearest sense of their market value, and the least patience for being told "we'll revisit it next cycle." By the time a high performer raises pay directly, they are often already interviewing. The raise you offer to keep them then reads as a counteroffer, not recognition, and counteroffers rarely repair the trust that the delay broke.

This is the expensive part of the finding. If the people most sensitive to pay gaps are also the people you can least afford to replace, then letting compensation drift is not a cost-control strategy. It is a slow, targeted loss of your strongest talent.

What to do about it

You do not need a market-leading pay philosophy to act on this. You need to stop losing good people to gaps you could have seen. A practical sequence:

• Benchmark honestly, by role. Pull current market data for each key role and compare it against what you actually pay, not against your posted bands. Look hardest at your highest performers and your longest-tenured people, where drift and compression hide.
• Find the flight-risk list before the market does. Cross-reference "paid below market" with "hard to replace" and "strong performer." That short list is where a pay correction returns the most.
• Fix pay before it's demanded, not after. A proactive adjustment reads as the company valuing someone. The identical raise handed over during a resignation reads as leverage. Same money, very different signal.
• Treat benefits as part of the number. Since the cited reason is salary and benefits together, weigh health coverage, retirement contributions, and leave alongside base pay when you compare yourself to competitors. A benefits gap can lose someone a competitive salary never would.
• Build the finance case on shared ground. Because CFOs already name inadequate pay as the top driver of regretted quits, frame retention spending as avoided replacement cost rather than as a raise request. You and finance are, unusually, looking at the same root cause.
• Make pay reviews a schedule, not an event. Set a recurring cadence to re-benchmark and correct, so market drift gets caught in months instead of after a resignation.

The bottom line for people leaders

The people closest to the money say pay is why good employees quit. SHRM reports that CFOs named inadequate salary and benefits as the top reason. You cannot always match every competing offer, but you can stop being surprised by gaps you never measured. The leaders who keep their best people are usually not the ones who pay the most. They are the ones who notice a pay gap opening before their strongest performer does.