A market-driven compensation system bases pay decisions on external competitiveness, meaning compensation levels are aligned with what comparable employers pay for similar work. Therefore, the correct answer is the rate most employers in the area are paying (B).
At the SPHR level, compensation strategy is often framed around three core considerations: market competitiveness, internal equity, and compliance. A market-driven system prioritizes external labor market data obtained through salary surveys and benchmarking studies. This approach helps organizations attract and retain talent by ensuring pay rates are competitive within the relevant labor market.
The value of the position to the organization (C) reflects an internally driven compensation philosophy, often associated with job evaluation and internal equity models—not market-driven systems. Federal wage and hour laws (D) establish minimum standards but do not determine competitive pay levels. Regional labor statistics indicators (A) may inform market analysis, but they are data sources rather than the determining factor; the actual benchmark is what employers are paying in practice.
SPHR professionals must understand how to select appropriate labor markets, interpret survey data, and apply market pricing to compensation structures. A market-driven approach is particularly important in tight labor markets or for critical roles where external competition strongly influences attraction and retention.
References :
HRCI SPHR Exam Content Outline — Functional Area: Total Rewards (compensation strategy; market pricing; external competitiveness).
HRCI SPHR Study Guide — Market-based compensation systems and salary survey utilization.
