It's ok to pay at the 25th percentile.
Target percentile is just the point in the market where you decide to anchor offers for a role. But it should be chosen because it's a strategy decision, not a vibe.
Most comp issues I see come from mismatched expectations. Someone sets a 25th percentile budget and then gets frustrated when the 75th percentile candidate takes another offer. The number wasn't wrong. The expectations were.
Here's a simple way to think about it.
75th percentile and above Use this when the role is business-critical, great talent is scarce, or speed matters more than saving cash. Think founding engineers, your first VP, a comp-critical senior hire you can't afford to miss. You'll fill faster, but you'll burn more cash and create internal equity pressure if peers sit lower.
25th to 75th percentile This is where most roles should live once you're past about 50 people. You're still paying fairly, but you're competing on learning, scope, flexibility, and team. You'll lose some candidates on pure cash. That's fine, as long as you can actually deliver on the growth story you're selling candidates.
Below 25th percentile Be brutally honest with yourself here. This works if the role is clearly a junior or stepping-stone position and the upside (learning, brand, network, equity) is real. If the upside is wishful thinking, you're just underpaying and hoping nobody notices (they will).
Your job is to reset hiring managers who assume 75th percentile talent on a 25th percentile budget. Choose the band together and be specific about what it buys.
What to do with this
Bucket your current roles into these three bands. For each one, check whether the pay matches the story you tell candidates and the reality of the role. If it doesn't, fix the mismatch before you blame "the market".
You don't need to pay top of market for every role. You do need to be honest about where you sit and what that buys you.