What is competitive pay?
Because every industry has unique standards, the specific dollar amount that can qualify as competitive pay can vary depending on the industry in question. There are many ways to determine whether you’re offering competitive pay. For instance, conducting market research on your competitors to identify the base salary that they offer to their employees and comparing it to what you provide.
Competitive pay can also include aspects of compensation other than salaries, like employee benefits and company bonuses. For example, if a company pays its employees an average base salary, which is the salary an employee earns excluding benefits or bonuses but provides them with extensive benefits that surpass those of their competitors, they can still be said to offer competitive pay.
Why offer competitive pay to employees?
There are many reasons why offering competitive pay to employees is a great choice. Here are some reasons for providing competitive pay:
Heightened company morale
Offering competitive pay to employees can boost company morale because it can emphasize that a company values its employees. This can result in employees feeling respected and important in the workplace, which can help improve morale and keep it high. Employees who earn competitive pay also typically experience higher levels of job satisfaction. This typically translates to a positive work environment that can help keep the company morale high.
Increased employee retention
Another reason to offer competitive pay is that it can increase employee retention at a company. This is because employees who earn competitive salaries are often more likely to remain at their jobs instead of looking for higher-paying positions with other employers. Usually, generous benefits packages promote a feeling of security among employees and they’re less likely to look elsewhere for a job where they can earn more or higher-quality benefits. Higher employee retention rates can be very important to an employer, especially because it can reduce the expenses for recruiting, hiring, and training new employees.
Enhanced performance and productivity
Competitive pay can also promote better employee performance, which can lead to enhanced productivity levels. When an employee feels that they’re being compensated generously for their time, they feel valued and they’re more likely to produce high-quality work. Improving employee performance can naturally result in a company experiencing higher levels of productivity, as employees performing well often leads to overall business success.
What factors can you consider when setting competitive pay?
Establishing a fair and competitive pay scheme requires an evaluation of a few internal and external metrics. Here are a few details you can consider when determining how competitive the pay you offer your employees is:
Industry standards
One of the quickest ways to determine whether the pay level you want to offer is competitive is to compare it to industry standards. Because the average salaries and compensation trends in each industry can be different, it can be helpful to research the standards in your industry in a broad sense and also to review the compensation trends at some of your specific competitors. For example, if you run a beverage company, you can research the pay levels in the food and beverage industry and the average salaries at specific beverage companies with operations and products similar to yours.
Market demand
Market demand can be another key factor to consider when trying to offer competitive pay. This is because some industries might experience a higher demand for specialized roles that require technical skills and extensive expertise. These circumstances can provide the perfect opportunity to offer competitive pay, as when a position is in high demand, more companies might be more likely to reach out to qualified candidates. Similarly, when a job has low market demand, you can offer competitive pay to attract candidates and make your job opening appealing to qualified candidates.
Geographic location
Geographic location can also contribute to the level of pay that qualifies as competitive. Considering the business location when determining salary levels can help make it competitive. This is because many industries experience different compensation standards based on where companies conduct business. For example, some provinces in Canada might pay a higher average salary than other provinces for the same position. As such, it can be helpful to research the average salaries in a province or city to determine whether the pay is competitive based on the location’s standards.
Employee expertise level
Considering the level of expertise that employees have is another factor that can influence whether the pay is competitive. Typically, employees with several years of professional experience or extensive formal training qualify for higher salaries than new entries. In turn, comparing the salaries of employees at different levels with similar salaries from competitors helps determine if a salary is competitive. For example, if entry-level employees, typically the lowest-paid, earn salaries that are close in value to experienced employees at other companies, such pay is competitive.
