- What does competitive pay mean?
- Why is it important to offer competitive pay?
- How do you determine competitive pay?
- What does a competitive pay package include?
- Pros and cons of competitive pay
Competitive pay is one of the best ways to attract and keep talent in your company. But what is it? Here is what you need to know about competitive pay.
What does competitive pay mean?
‘Competitive’ means comparable to other employers in the market. For a similar job, a competitive salary is equal to or above the standard offered by companies in the same industry or geographical area. However, human resources (HR) professionals are more precise in their definition. For HR experts, being competitive means paying about 10 percent above or below the market average for a job.
Moreover, if salary is the number one incentive that drives someone to accept a job offer, it’s important to remember that competitive pay includes more than money. Today, being competitive is also about being different. You must offer benefits and bonuses that job seekers value. Flexible work, paid family leave and career development plans are examples of perks that employees appreciate.
What your company can provide depends on the size of your organization, its available budget and what your employees define as essential. You should find out what makes them happy and what motivates them. It can be discussed in conversations or discovered via surveys or focus groups. Once you find out what will make them stay, you can adapt your strategy. Maybe your staff is more interested in a good retirement plan or more flexibility in the schedule than higher pay. Perhaps they want fewer benefits and more cash in their accounts. Some firms pay less but provide great compensation packages. Government employers and large firms, for instance, emphasize the benefits they offer in their salary strategy. Small businesses build their salary package as their budget grows, little by little.
Why is it important to offer competitive pay?
There are many reasons you may want to offer competitive pay. Some of those reasons include the following:
Commitment pays off
When you provide a competitive wage, you clearly show the employees that you care. It is a sign of commitment: you are ready to invest in them. The employees welcome this message as encouragement, and in return, they invest themselves in your business. Loyalty can translate into increased productivity.
Paying less has a cost
If you think that paying less will allow your company to save money, you are wrong. One of the main reasons employees quit their jobs is to get a higher salary in another company. If your staff is unsatisfied and decides to leave you for a more competitive rate, you will have new expenses. The hiring process for a replacement takes time and resources including creating the perfect ad and performing interviews. Training the new hire has a price, too, and let’s not forget the intangible cost of lost productivity. It is crucial to adapt your salary policy to ensure your offers are equal to or higher than the average in your area and industry.
Your people are an asset
Even if your employees cost more in the beginning than what they produce, they represent an investment. With time, they will be full of knowledge and experience, and they will bring added value to your company. Thanks to what you invest in them, they will become loyal. You should not see them as an expense but as an asset.
Related: How to Find Good Employees
How do you determine competitive pay?
To determine what competitive pay is in your market, the first thing you need to do is some research. Here are the main things you should consider as you look for information.
Industry trends and standards
Find out what your competitors offer for a similar position.
Consider the location. Salaries vary from state to state. Therefore, you should look for pay rates in your area.
The impact of supply and demand
If the position you are recruiting for requires highly specific skills or experience, it might be harder to find the right candidate. It is often the case for academic roles, leadership or technical positions. If there are few people with the qualities you seek, you can expect that you will have to pay more to hire them. For jobs that require fewer qualifications and are easier to fill, the salary will be lower.
Where can you find wage information?
The Bureau of Labor Statistics is an incredible resource for information about wages. The data is classified by industry, geographic, gender, job characteristics and the level of difficulty and complexity of the work.
Another way to gather the necessary information is to conduct surveys or access survey data and study it.
What does a competitive pay package include?
Competitive base salary, health insurance and a retirement plan are the must-have benefits necessary to attract and keep talent in your company.
Employees want and need health insurance. It is often the benefit they consider most important. It is a significant decision point for employees when they are considering several opportunities. Offering quality health insurance can identify you as an employer of choice. So, if you can only afford to provide one benefit in your pay package, health insurance is the one.
401(k) or other retirement plan
A 401(k) is a retirement savings plan. It allows employees to save a part of their salary before taxes are taken out. It is also called the contribution pension account, and it is tax-qualified, according to the Internal Revenue Code.
Paid time off (PTO)
Paid time off from work is a benefit providing hours that employees can use as they need or desire for vacation, sick leave or personal reasons.
Related: How to Create a Time Off Policy
Pros and cons of competitive pay
With a competitive pay rate, employees spend more time focusing on their job instead of looking for a job with better pay, and this increases productivity. When fewer people leave the company, the mood is better, the company knowledge grows and the company culture develops.
However, focus on competitive pay should not lead you to forget other aspects like providing continuous training, developing a positive company culture, implementing wellness plans and employee development. All those other features can be necessary to stay competitive in your industry and region.
It is essential to continually adapt the salary and compensation policy to stay competitive, continue attracting and retaining talents and ensure your employees’ satisfaction.