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What is Competitive Pay?

Competitive pay is one of the best ways to attract and retain talent. But what is it? Here’s what you need to know about offering competitive pay, plus how it’s linked to your company’s success.

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What does competitive pay mean?

‘Competitive’ means a salary 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, competitive pay means offering within 10 percent (above or below) the market average for a job.

Moreover, it’s important to remember that competitive pay includes more than money. Today, being competitive is also about being different, so stand out by offering 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 will depend on the size of your organization, its available budget and what your employees define as essential. You should find out what keeps your team happy and motivated, which can be discussed in conversations or discovered via surveys or focus groups.

Maybe your staff is more interested in a good retirement plan or schedule flexibility than higher pay. Perhaps they want fewer benefits and more cash in their accounts. Find out what is most likely to keep your employees on board so you can adapt your strategy as you see fit. For example, some firms or government agencies pay less, but provide great compensation packages and emphasize that benefit in their salary strategy.

Related: How to Hire Employees: A Step-by-Step Guide

Why is it important to offer competitive pay?

There are many reasons you may want to offer competitive pay, including:

Commitment pays off

Providing a competitive wage shows employees that you care and value their contributions. It is a sign of commitment: You’re ready to invest in them. Employees welcome this message as encouragement, and in return, they invest themselves in your business. This loyalty can translate into increased productivity and engagement.

Paying less comes with a cost

Paying employees less can actually cost your company money in the long run. For one, it’s not uncommon that employees will quit their current jobs for better-paying roles with another company. If your staff is unsatisfied and leaves your company for a more competitive rate elsewhere, you’ll have new expenses, including the cost of hiring and training new team members. Companies that don’t offer competitive pay also risk a decrease in overall employee performance.

Employees are an asset

Your employees may cost more upfront, but they represent an investment. Over time, they’ll bring added value as they become more knowledgeable with your company’s services and products. Avoid thinking of your employees as an expense, but as an asset.

Related: How to Find Good Employees

How do you determine competitive pay?

Determining competitive pay in your market takes research on your part. Here are some key considerations to help you determine salary competitiveness.

Industry trends and standards

Find out what your competitors offer for a similar position, taking in account your company’s industry and size.


Consider where your business is located. Salaries vary from state to state and even city to city, so research nearby pay rates and the cost of living in your area.

The impact of supply and demand

If you’re recruiting for a position that requires highly specific skills or experience, it might be harder to find qualified candidates to fill the role. This can be the case for academic roles, leadership or technical positions. If there are few people with the qualities you seek, you can expect that you’ll have to pay more to attract them. When hiring for jobs that require fewer qualifications and are generally easier to fill, you may not need to offer as competitive of a salary.

Where can you find wage information?

The U.S. Bureau of Labor Statistics is an incredible resource for information about wages. 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 study survey findings.

What does a competitive pay package include?

Competitive base salary, health insurance and a retirement plan are a few benefits necessary to attract and retain top talent.

Health insurance

Offering health benefits to employees is a must if you want to gain a competitive edge. In fact, employees often consider this benefit most important — and it’s a significant decision point for candidates when they’re 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.

Retirement plan

Retirement plans allow employees to save a part of their salary before taxes are taken out. Common types of retirement plans that companies offer include 401(k) plans, SIMPLE IRA plans and ROTH IRA plans.

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

A competitive pay rate can influence an employee’s overall job satisfaction. Workers that feel they’re being paid fairly are more likely to stay motivated and go the extra mile to help your company achieve its goals. Competitive salaries can also lead to low employee turnover, high morale and an overall positive vibe.

However, focusing on competitive pay should not lead you to forget other aspects, such as providing continuous training, developing a positive company culture and implementing perks like wellness plans — all of which can help you attract and retain qualified workers.

Remember, in addition to determining competitive salaries for your company, make sure to continually adapt your salary and compensation policies to keep up with fluctuating job market or employee needs.

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