I have some insight into this.
It actually means that:
-
companies identify peer groups of companies that they compete with for hiring,
-
they get aggregated data on everyone's pay from data brokers (they submit anonymized compensation info, brokers aggregate it and distribute the aggregate data to their customers)
-
they pick a market percentile of the compensation range of their peers that they target for various jobs
-
they build pay ranges around that target percentile
Effectively, if most companies target pay "at market" i.e. market median, it normalizes industry pay to the median. This does depress wages, but also provides upward pressure at the low end. Sort of like a price fixing scheme.
Some companies target higher than that, and those effectively provide upward labor market pressure.
So, "competitive" means "sort of near to or higher than the statistical median for this job among companies we consider peers". Unless they're just lying or misinformed - but they'd have a hard time retaining employees.