Understanding a fair rate to pay your employees is an important part of running a business. Business owners who have an intentional competitive pay strategy can reap long-term benefits and build a committed team of skilled employees. Learn how to set up a fair and effective system for offering competitive salaries at your workplace using this guide.
What is competitive pay?
Competitive pay is employee compensation that is equal to or higher than the average salary for similar jobs. Because businesses often compete for top talent, offering a competitive pay rate is essential for developing a productive and successful team of employees. Competitive pay can include a high salary or hourly rate and high-value benefits such as comprehensive health insurance or regular bonuses. Factors like location, economic conditions and number of applicants for a position can all influence the exact value of competitive pay.
Benefits of offering competitive pay
Providing competitive pay for your employees has several immediate and long-term benefits for building and sustaining your business’s workforce. While some companies see employee pay as an expense and offer the lowest pay rate possible to fill each position, paying your employees a fair market salary can be a lucrative investment in your business’s growth. Consider these benefits to offering a competitive pay structure:
- Attract talent: Draw the attention of top candidates by advertising a premium salary in your job postings. Talented candidates may have several job options, and a competitive salary can convince them to apply to work at your company.
- Build culture: Show your employees that you value their contributions by paying them a competitive rate. Paying salaries that reflect employee’s market value builds positive company culture, fostering productivity and commitment among your team.
- Limit turnover: Encourage loyalty in your company by giving out regular raises to maintain competitive pay for high-turnover positions. High salaries can help offset the stress of challenging positions that are hard to fill.
Related: 10 Recruiting Strategies for Hiring Great Employees
Tips for determining a competitive salary rate
Competitive pay can translate to different hourly rates or yearly salaries depending on the industry, company and role. Consider these tips when deciding on a fair competitive rate for a position at your business:
Calculate median salaries
Start by looking up the median salaries for similar positions to the one you want to fill. You can find information on the Bureau of Labor Statistics or conduct your own independent research. Calculating the median pay for a position can help you understand what most candidates expect in terms of compensation and set a fair rate to meet those expectations. It also gives you an idea of whether you can afford to hire for a certain position based on your current budget or if you should prepare to make adjustments.
Research the local market
Demand for certain skill sets can vary from place to place, making it critical to research pay rates and compensation in your area. Cost of living, economic fluctuations and other factors can drive the average salary up or down. If you want to use competitive pay to get the best candidates, you’ll need to offer compensation that matches or beats nearby competitors. Search job boards and make note of the common salary range for similar positions in your city.
Think about how employee salaries fit into your company’s bottom line. If it is important to minimize costs to stay within a budget, you may want to set a pay rate that is as close to the market rate as possible. On the other hand, if you have the budget to pay a premium on salaries and hire highly skilled employees you could benefit from advertising a higher salary outright. Calculate how much you can afford to spend to help set a rate that makes sense for your company’s growth.
More experienced employees generally expect a higher salary to pay for the extra value they bring to the company through their professional expertise. If you are hiring for an entry-level position, competitive pay may be a relatively standard hourly rate across the industry, but senior positions can have a much wider range for what a competitive salary could be. Many job postings include the phrase DOE, meaning “depending on experience” when describing the salary range.
Factor in benefits
Wages are only part of a competitive compensation package. Commission, bonuses, insurance and other perks can all make a job offer more appealing to a candidate. Research what forms of compensation are popular in your field and choose benefits that add the greatest value to your job offers.
Related: How to Set Employee Salaries
5 steps to establishing competitive pay at your company
Instituting competitive pay across your company has the potential to improve morale and productivity when done correctly. Use these steps as a guide when setting up a competitive pay system at your business:
1. Research pay structures
There are many different pay structures businesses use to set pay rates. While not all companies have a specific policy in place about how salaries are determined, having a set structure in place ensures employees receive fair pay that makes sense for their position and experience level. Set a range for the salary you are willing to offer for each type of position, keeping in mind that competitive candidates may want to negotiate their benefits. Choose a pay structure that has enough flexibility to attract talent while aligning with your plans for growth.
2. Decide how to determine raises
Giving out pay increases over time helps compensate employees for their earned experience and ensure that their salaries at your company keep up with the salaries offered by your competitors. Many employees expect cost-of-living raises each year in addition to the chance for merit-based raises. You can award raises based on seniority, performance reviews or other standards. Once you decide on a raise policy, be consistent with implementing it.
3. Practice regular benchmarking
Once you start offering competitive salaries to new hires, it’s important to recognize and value the current talent you have at your company as well. Regularly evaluate how current employee salaries compare to the industry standard. Job responsibilities can change over time as an employee grows in their role, so plan to annually review the duties and contributions of each employee and make adjustments to compensate them fairly.
4. Communicate with employees
Be transparent with your employees about how you determine salaries and raises. Communicating your criteria for pay in the short-term and long-term can help employees feel respected and valued, encouraging them to remain motivated in their work. Explain your pay structure to new employees during onboarding so they can understand their financial opportunities at our company, and send memos to existing employees any time you make changes to your competitive pay policy.
5. Advertise with job postings
Make your job posting more attractive to serious candidates by advertising a competitive salary. List a firm salary, a negotiable salary range or simply mention that your company offers competitive pay and benefits. Listing a pay range can attract qualified candidates who search for jobs by experience level or job title.