If you’re a new business owner thinking about putting up a job description for new talent, then you’ll want to offer a competitive salary range. But what is a competitive salary? How can you stand out in job adverts to offer a salary that attracts the best talent and keeps them with you? The problem with exploring what a competitive salary means is that it means something different to each employee. Different employees in the same position could see a competitive salary and compensation package as different things. There are a few different approaches you could take:
- Looking at what other employers are offering for similar roles and similar positions in your industry – noticing industry averages and maybe offering a little bit more
- Look at what it costs to live in your area and then create a salary and benefits package that exceeds expectations
The most important thing to get right isn’t looking at the market rate and offering that exact figure but instead looking at what your employees want and need. Keep your talent happy, and they’ll be more likely to stick around.
By our teams definitions, however, there are at least 6 different ways to define what a competitive salary is. We’ll explore them below to help you decide what a competitive salary means in your workplace so you can offer the best for your employees.
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1. Matching Or Beating Competitor Salaries
Perhaps the most obvious definition is that you offer more money to your employees than your competitors are offering to theirs, or at the very least you match it. A lower salary will almost certainly stir up negativity with your workers.
In reality, an industry standard is usually easily found no matter the industry. Even if it’s minimum wage for younger workers at a fast food establishment, there is a standard. If you can beat what your competitors are offering then you’ll automatically be more attractive to the candidates you’re trying to attract.
Performance is another huge factor to consider. If your employees know the salary information of competitors and knows they’re offering more, then they’ll become frustrated and won’t offer as much in terms of the performance they put in at work. Employees being paid what they’re worth will perform far better.
By matching or outperforming your competitors, even by a small amount, you’ll control overheads and the money you spend each month on wages whilst still being an attractive place to work.
To achieve this definition, you’ll simply need to know what salaries are being offered at competitor companies. Look at job postings, both recent and historic to get an idea of the trend in the industry. Once you know how much is typically being offered you can either match it, with additional benefits to sweeten the deal, or offer a little above what competitors are offering to attract candidates.
2. Based On Cost Of Living In Your Area
This might be a void point if remote work is typical in your area, but for some industries the norm is still to come to work each day. If that’s the case for you, then perhaps the best way to look at what a competitive salary is is to simply look at the cost of living in your area and then offer a salary that provides a good quality of life for your employees.
To offer a competitive salary using this definition you would focus on local competitors to determine what they’re offering near you. What’s typical nearby is usually a good indicator of what’s needed to survive comfortably in the area. Consider London, for example. The cost of living is so much higher here than, say, the North East of England. Candidates with the same:
- position
- educational background
- candidate experience level
- contribution to the company
would be offered different wages in both locations despite the fact they’re doing the same job in similar ways.
To calculate employee salaries using this method look at the cost of living in your area. Research rent prices, the cost of food and typical transportation costs. Then look to local competitors to compare what they’re offering for similar positions. If you want to attract and keep the best talent, then giving them the best quality of life is the best way of doing that.
3. Salaries Based On Performance
One definition of competitive salaries are those that reward employees for their performance. It incentivises employees and ensures they’ll put in their all each day to be rewarded with additional bonuses and the like. This improves efficiency and business output.
Of course, in order for this to work you need to make clear what performance metrics you’re measuring and how employees can achieve what you’re looking for to enjoy this more competitive salary. Many employers make the mistake of not being clear enough here.
One common way to measure performance is through productivity metrics. This can involve tracking the number of products or services produced by an employee over a certain period of time. Another common way is through customer satisfaction surveys. This allows businesses to gauge how well employees are meeting the needs of their customers.
However you choose to measure performance, make sure there are clear rewards for achieving certain milestones so the metrics actually mean something to your employee. Fair compensation is key at work and if you want to keep the top talent you attract then being open and honest about the salary range they could receive for meeting and exceeding targets is the best way forward. Clear benchmarks that are fixed is the key here. Moving the goalposts too often is dangerous territory and could lead to dissatisfaction even if the potential for a higher salary is offered.
4. Salaries That Reward Experience Level & Qualifications
Some business owners will simply define a competitive salary as one that rewards an individual for their industry experience and qualifications. This can be a great way to attract candidates if your business is prone to hiring new employees with experience studying and working to improve their skills. This rewards their efforts and it can be attractive to new employees.
Of course, the right qualifications and experience is vital as it shows dedication to the industry and role and the skills learned can be invaluable to your company. Since they’ve already shown such dedication the likelihood is they’ll contribute to your company long term, progressing up the ranks and offering plenty of loyalty.
A competitive salary based on experience and qualifications will look different in each industry. For some, it could simply be a practical college course such as hairdressing that could lead to a higher salary than someone starting from the bottom. Another might require a PHD or Master’s degree, depending on industry. The point is, rewarding experience and qualifications is a great way to be competitive as an employer, but you’ll need to know what’s the norm in your industry to get it right and not over or underpay your employees.
5. Additional Benefits Package
Not all competitive salaries are so defined because they offer more money, but additional benefits can be offered to make your salary offerings more competitive. It can attract employees who might be rewarded in other ways.
Some of the most desirable employee benefits include private health insurance, generous pension contributions, and company cars. These benefits are particularly attractive now during the cost of living crisis in the UK:
- Private health insurance helps to ensure the highest levels of care for employees and their families and means they don’t need to wait to see a doctor or get surgery.
- Generous pension contributions can provide a financial cushion in retirement which is increasingly important as life expectancy rates continue to rise.
- Company cars or fuel allowance are fantastic perks which can save employees a lot of money on travel costs, particularly if they live in a rural area or have to commute long distances.
Other benefits which are becoming more popular include flexible working hours, working from home, and extra holiday allowance. These benefits are attractive to employees as they help to improve work/life balance which is so important in today’s fast-paced society.
By offering additional employee benefits, you are showing your employees that you care about their well-being and want to make their working life as enjoyable as possible. This will make them more likely to stay loyal to the company and also ensure that they are motivated and productive when they are at work.
6. Salaries Based On Loyalty
A competitive salary can also be one which rewards loyalty. This is a good way to define it because employees appreciate when their efforts are recognised and will be more likely to commit and stay loyal to your company long-term if there are financial incentives for doing so.
In today’s culture, employees are often encouraged to move from job to job, chasing a higher salary. But what if you set your salaries up so that the longer a person works with you, and therefore the more they have contributed, the more rewards they’ll see in terms of salary increase.
Loyalty is so important because it helps create a strong team of employees who are passionate about their work and committed to the success of the company. It will also save you time and money having to recruit and train new staff members if you have a high turnover of employees.
By rewarding loyalty, you are showing your employees that you value their contribution and that you are willing to invest in their future with the company. There are various pay and bonus structures you can implement to reward loyalty, such as giving employees a percentage of their salary as a bonus for each year they stay with the company or increasing their salary by a certain amount after they have been with the company for a certain number of years.
This pay structure is not only good for existing employees but will also help attract new ones as it shows you recognise the value of employee loyalty and believe that everyone should benefit from the company’s success.
What To Consider When Planning And Implementing Your Business Salary Structure
Whilst these definitions are certainly helpful, the best advice we can give is to consider the following factors instead when trying to create a competitive salary for employees.
What Do Your Employees Want?
If you’re ever unsure about anything in business it’s usually a good idea to just ask. Your employees know better than anyone what they want from a salary package and if your main aim is to make them happy to keep them around, then simply ask what they’re hoping for from their career in terms of salary.
It’s a good idea here to conduct a company wide survey and speak with some members in a focus group to get a consensus on what most people would like.
Do they value job security and a stable income or are they looking for opportunities to earn bonuses and commissions when a set figure is met?
By answering these questions, you will be able to design a salary structure which meets the needs of your employees and ensures that they are happy with their compensation.
What Can You Afford To Pay?
It is important to make sure that you are not overspending on salaries as this can put your business in financial difficulty quickly. Unmonitored overspending has been the death of many a business. You need to calculate how much you can afford to pay your employees based on your business’s revenue and profits – and it’s important to be realistic about this. Every employee would like to be paid more money and every employer would like to pay their employees more money, but it isn’t always possible.
If you are a start-up or small business, you may not be able to match the salaries of bigger businesses but there are other ways to make sure your employees are satisfied with their compensation, such as offering shares in the company or profit-sharing schemes.
What Is Your Business Looking For?
Identifying exactly what you want from your employees will help you decide how much you are willing to pay in terms of salary.
Are you trying to attract the best talent, or are you more concerned with getting value for money?
While all employees deserve to be paid a fair wage, your business may be in an industry where your employees do not need to be the best in class in order to be successful. In this case, you may not need to offer top salaries but instead, focus on offering a salary which is competitive within your industry.
On the other hand, if you are trying to attract the best talent, then you will need to offer salaries which are above average for your industry. This is because the best employees will have many job offers and so you need to make sure that your offer is competitive in order to attract them to your business.
Are There Any Non-Financial Rewards You Can Offer Employees?
In addition to salaries, there are other ways to compensate employees which can be just as effective, if not more so. These include the ability to work from home, shares in the company, extra vacation days or just a more flexible work schedule.
Sometimes, these non-financial rewards can be more valuable to employees than a higher salary as they offer a better work/life balance and so can help to improve employee satisfaction and motivation. Consider what would be most attractive to your employees and try to offer a mix of financial and non-financial rewards.
What Does A Competitive Salary Mean: Final Thoughts
While it is usually defined as being above the average salary for a particular position in a particular industry, it can also mean the salary which meets the needs and desires of your employees and helps to attract the best talent to your business. When deciding on your salary structure, it is important to consider all of the factors mentioned above in order to ensure that you are offering a competitive salary which will help your business to succeed.
