Offering competitive pay can significantly help to attract and retain top talent. Understanding the market, keeping a keen eye on the industry-standard salary and then meeting or exceeding that number is attractive to job seekers. After all, everyone wants to be (and deserves to be) paid at least as much as their peers. If a company can afford to budget to pay their employees a little better, it'll give the company a competitive advantage in their recruitment process.
Here's everything you need to know about what competitive pay really means, why it's important to offer competitive pay, how to calculate it and what to include in your competitive pay package — as well as a few pitfalls to offering competitive pay.
What does competitive pay mean?
Companies look at employee salaries in one of two ways: They either see employee pay as a necessary expense that they have to spend, or they see it as a tool they can use to attract and retain top talent. Therefore, competitive pay refers to a salary that is equal to or greater than the industry standard — taking into account experience level, of course.
So, for example, an early-career journalist (someone with one to four years of experience) earns an average total compensation of about $39,099, which is based on 417 salaries on PayScale. A company wanting to offer competitive pay might offer any salary equal to or greater than about $40,000. Whether that company chooses to offer $40,000, $60,000 or somewhere in between is up to them — either way, a salary that meets the market average for the employee's skill level is considered competitive. A salary that exceeds the market average for the employee's skill level, however, is actually competitive in that the company can better compete with other companies recruiting the same employee.
Likewise, a retailer might offer part-time employees competitive pay. Making note of this in the company's job advertisements is one surefire way to attract attention from people looking for retail jobs. If the minimum wage is $15 per hour, for example, the retailer might offer prospective sales clerks $18 per hour in an effort to reel them in. Because there are so many retail jobs available and they tend to have high turnover rates, some retailers have to look for creative ways of recruiting employees and keeping them around — competitive pay is one way to do it.
So, boiled down, competitive pay means that the salary offer is at least reasonable for the level of experience that a job hunter has.
3 reasons why it’s important to offer competitive pay
It's really important to offer competitive pay for a variety of reasons. Here are three major reasons why a company might choose to offer competitive pay to employees.
1. Competitive pay attracts employees.
It's no secret that competitive pay attracts employees. While a burgeoning body of research finds that high pay isn't the only determining factor for job seekers when deciding on prospects (more and more people these days look for meaningful work over a bigger paycheck), it'd be a lie to say that money doesn't cross people's minds. If there are two job opportunities both for the same kind of work, and one offers more than the other, which do you think the employee will take? The answer is obvious: the better-paying opportunity.
2. Competitive pay retains employees.
Competitive pay can help to retain employees, as well. After all, according to a recent PayScale Study, the top reason why people quit is to take jobs that pay better. In fact, 25 percent of the people surveyed left their current roles for higher pay.
"More workers than ever before are leaving their jobs and feeling incredibly confident that they will find another one, and quickly," according to the research.
3. Competitive pay helps to keep employee morale up, which boosts performance and production.
Knowing that you're being paid well and fairly can help to keep you satisfied. There is considerable evidence out there that suggests that money is a major motivator; though not the only motivator, it influences people a lot. In fact, according to an SHRM study, 61 percent of employees ranked compensation as a "very important" contributor to job satisfaction. And when morale is high, they perform better and produce more. It's simple science.
How is competitive salary calculated?
A competitive salary is calculated by looking at the industry standard for the employee's experience level. The company should do research on what other comparable companies are paying their employees and try to match these salaries or, better yet, exceed them if they can afford to do so.
Companies can look to online salary calculators to get a better idea of what they should be paying employees in their field based on their levels of experience. Some of the most popular salary calculators out there include PayScale, Salary.com, Glassdoor, Monster and Hired, among others.
What is a competitive salary for an internship?
According to an internship survey from the National Association of Colleges and Employers (NACE), the average hourly wage rate for a bachelor's degree intern is about $16.26. Therefore, a competitive salary might be anywhere around $17 per hour or more.
That said, however, it's important to keep in mind that, the closer to graduating an intern is, the higher the internship average wage is. A college senior, for example, earns about 20.2 percent more on average than a student who just completed their freshman year at school — the difference is $17.47 versus $14.53 per hour. So competitive pay for a college student who is in between their freshman and sophomore year might be about $15 per hour instead.
What’s included in a competitive pay package?
A competitive pay package is inclusive of the salary and fringe benefits that a company offers to its employees. The number of benefits that a company can offer to its employees is basically unlimited. Benefits might include anything like the following:
- Health insurance
- Dental insurance
- Vision insurance
- Fitness program
- Child daycare
- Loan reimbursement
- Commute cost reimbursement
- 401k and other retirement plans
Pros and cons of competitive pay
There are pros and cons to everything — including competitive pay! You already know the pros to competitive pay (you can better attract and retain employees, as well as keep them happy so they produce better work!), but there are also some downsides to offering competitive pay. Here are some of the cons involved...
- You have to budget better in order to spend more on employee salaries, which might mean cutting other costs.
- You set a high bar that you then have to meet for other comparable employees in order to pay all employees equally and fairly.
- Studies show that competitive pay won't be the only way to keep employees satisfied, so you'll have to come up with other creative ways to keep morale up, too.
AnnaMarie Houlis is a feminist, a freelance journalist and an adventure aficionado with an affinity for impulsive solo travel. She spends her days writing about women’s empowerment from around the world. You can follow her work on her blog, HerReport.org, and follow her journeys on Instagram @her_report, Twitter @herreportand Facebook.