Many companies struggle to attract the best talent to help them achieve their goals. It is an open secret that competitive pay is among many factors that attract qualified candidates. In a competitive job market, employers must frequently offer competitive salaries. If you're looking for or trying to retain talented employees, you'll want to know how those positions are compensated in the market. We define competitive compensation, examine the elements that influence it, and explore how to design a competitive salary.
Related: Salary Benchmarking
What is competitive pay?
Competitive pay refers to an employer who pays compensation comparable to or higher than the industry standard for similar jobs in the same geographic area. Employers use their compensation rates to compete with other organizations for high-quality personnel. This term is frequently used as a selling point in job postings and online job forums. Employers who offer competitive pay are often willing to negotiate a salary in exchange for hiring a more qualified employee.
Competitive compensation in today's employment market entails more than just the rate of your basic salary. The wage you agreed to when you signed your employment contract is your "basic salary." Bonuses, benefits, and future pay increases are not included in basic pay. Employers who cannot offer a competitive basic salary may instead offer competitive benefits packages or flexible work hours.
What affects competitive pay?
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You'll need to perform some specific research to understand and take advantage of competitive compensation as a company. Various aspects influence competitive pay rates, and it would be beneficial if you could become familiar with each of them. Here's a rundown of the factors that influence competitive pay:
1. Geographic area
Two employees in the same role will be paid differently depending on where they work. The rate of competitive salary will be considerably influenced by the city or country in which you operate. Because the minimum wage and average salary differ by country, it's critical to include local facts in your research including local facts in your research is critical.
2. Industry/job title
The competitive wage rate is also influenced by the industry to which your company belongs. Make sure you buy or use remuneration reports that provide results specifically for your sector.
3. Supply and demand
The salary ranges for certain positions may differ depending on the demand for the skill. In cases where demand exceeds supply, the salary figures will be high. If the pool of potential employees is quite small, they may be able to negotiate a higher-than-average compensation. You can easily see this during recruitment. The number of qualified applicants can be an indicator of the supply level. These considerations can significantly impact the wage that a company is prepared to pay.
4. Level of expertise
The employee's level of professional skill is the final aspect that influences competitive compensation. This comprises the skill set, educational background, work experience, and performance.
Why do employers list salaries as competitive?
Employers use competitive salaries for several different reasons.
First, they may wish to leave the opportunity for bargaining at a later stage. Settling on a fixed sum from the start prevents both parties from contributing cooperatively. The final salary will be determined by the candidate's expectations and level of expertise.
Second, pay information is frequently confidential, especially in Zimbabwe. Pay information isn't widely disclosed within workplaces as a matter of business policy.
Finally, many employers are eager to weed out people solely interested in making money. When a salary is listed as competitive, it allows them to focus on individuals who are more interested in the position and the company than the pay and benefits package.
Three reasons why its critical to provide competitive compensation
For a variety of reasons, it's crucial to provide competitive wages. Here are three primary reasons why a company can decide to pay people competitively.
1. Employees are attracted to companies that pay well
Competitive remuneration is well known for attracting staff. Which one do you think the employee will choose if there are two employment chances for the same type of work? The obvious answer is the higher-paying opportunity. Although a growing amount of data shows that other factors such as meaningful work, it would be a lie to argue that money isn't a consideration.
2. Employees are more likely to stay if they are paid well
Competitive remuneration may also aid employee retention. After all, according to a recent PayScale study, the most common reason for people quitting is to pursue higher-paying positions. 25% of those polled left their current jobs searching for better pay.
According to the study, "more workers than ever before are leaving their jobs and feeling highly certain that they will find another one quickly."
3. Employee morale is boosted by competitive compensation, which leads to increased performance and output
Knowing that you're being fairly compensated can help you maintain your happiness. Money is a primary incentive, according to a lot of research. It isn't the only motivator, but it has a significant impact on people. According to an SHRM survey, 61 percent of employees consider remuneration a "very important" factor in job satisfaction. When morale is high, they perform better and generate more.
What factors go into determining a competitive salary?
Competitive compensation is determined by comparing the employee's experience level to the industry standard. The company should examine what other similar companies pay their staff and aim to match or exceed these salaries if they can afford it.
Companies can use salary survey reports from consultants to figure out how much they should pay individuals based on their experience levels. Online platforms such as TheHumanCapitalHub.com, PayScale, Glassdoor, Monster, and Hired are just a few of the most popular salary calculators available.
What does a competitive compensation package include?
A competitive pay package includes a company's wage and other benefits to its employees. A company's ability to offer perks to its employees is practically limitless. The following are examples of possible benefits:
- Transport allowance
- Housing Allowance
- Cell phone Allowance
- Lunch Allowance
- Entertainment
- Other Allowances
- Security Guard Provided
- Subsidized Meals
- Medical Aid Contribution
- School fees Assistance
- Pension
- Education Assistance paid out
- Club Fees
- DSTV Subscriptions
- Type of company Car
- Vehicle Allowance
- Fuel allowance
- Vehicle Replacement period
- Vehicle insurance per annum
The benefits and drawbacks of competitive pay
Everything has advantages and disadvantages, including competitive pay! You already know the benefits of competitive pay (you can better attract and retain staff and keep them happy so they can perform better work!), but there are also some drawbacks. Here are a few of the disadvantages:
1. To spend more on staff pay, you'll need to budget smarter, including eliminating other expenses.
2. To pay all employees equally and fairly, you set a high benchmark that you must subsequently meet for all equivalent employees.
3. According to studies, competitive pay isn't the only method to keep employees happy, so you'll need to think of additional strategies to maintain morale high.
In a nutshell, competitive salaries are very crucial. Companies have to offer competitive salaries to retain or recruit top talent in the market.
This article was by Benjamin Sombi a consultant at the Industrial Psychology Consultants. He can be contacted at benjamin@ipcconsultant.com