Competitive pay is an important tool used by employers to attract qualified, quality candidates for the position they are hiring for. For candidates, it’s also a great way to evaluate a company and determine if it’s the kind of organization they’d like to work for. In this article, we explain what competitive pay is, why it’s important, how it’s determined, what competitive pay packages include and how you can negotiate your competitive pay.
What is competitive pay and why is it important?
Competitive pay simply means that the compensation being offered is equal to or exceeds what is considered average for similar positions in the industry and geographic location. Though salary or wages are an important component of competitive pay, this term also includes things like benefits, bonuses and other perks that make the job more appealing.
This type of pay is considered “competitive” because it is a strategy that employers use to secure high-quality candidates and compete with other companies in the market. In other words, when a company offers a competitive salary, it means that they are willing to negotiate the compensation package if it allows them to hire a quality candidate. You often see this term as a selling point on job listings.
Why is competitive salary important?
Competitive pay has many benefits for both employers and candidates, including it:
Inspires a level of commitment. When a company offers competitive pay, it shows candidates that the employer values their talent and contributions, and they are committed to their professional development. As a result, this inspires dedication and loyalty from employees, which leads to higher engagement and improved productivity.
Reduces employee turnover. Companies that fail to offer competitive salaries often experience higher employee turnover rates as team members find roles that pay better. With competitive pay, employees are typically more satisfied in their roles and, therefore, stay with the company for much longer. By reducing turnover, employers can minimize their hiring and onboarding expenses and increase employee performance.
Positions employees as assets. Employees are investments that continue to gain value over time as they grow their expertise. When an employer offers competitive pay, it recognizes a candidate’s current value as well as their potential for further development.
How is competitive pay determined?
Competitive pay is determined by several factors, such as the:
Location: The company’s location plays a huge role in the competitive pay they are able to offer. Salaries often vary between states and even cities based on the area’s cost of living.
Industry trends: Competitive pay is usually dependent on the average pay for similar positions within the industry.
Number of qualifications: When there is a position that requires highly specific experience or skill sets, it’s typically more difficult to find qualified candidates. Because of this, employers often have to offer competitive pay in order to attract eligible candidates for these positions.
What does a competitive pay package typically include?
A competitive pay package usually includes things like:
Paid time off (PTO): Paid time off gives employees a set amount of hours each quarter or year that they can take off from work without it affecting their compensation. They can use this time any way they’d like, such as for personal reasons, sick leave or to go on vacation.
Retirement plan: Retirement plans give employees the ability to save a portion of their pay prior to taxes being taken out. Though the most common type of retirement plan is called a 401(k), there are also SIMPLE IRA and ROTH IRA retirement plans.
Health insurance: Health insurance is one of the most popular competitive benefits offered by employees because it’s usually considered the most important by candidates. In fact, many candidates choose their future employer based on whether they offer health insurance as part of their pay package.
How to negotiate competitive pay
Follow these simple steps to negotiate a competitive pay rate:
1. Determine the average salary for your position and industry
In order to determine what’s reasonable, you should start out by researching what the average salary is for your role within the market. You can determine your profession’s current market value by checking the salaries listed in job postings for your profession or by asking colleagues in the same field what their salary is. While conducting research, keep in mind that salary is influenced by a number of factors, like geographic location.
2. Evaluate your valuable skills
Before you can effectively negotiate a salary, it can be helpful to create a list of your strengths, skills, achievement, experience and anything else that makes you an asset. You can include things like your certifications and academic achievements. When possible, be as specific as possible by providing numbers and data. Using these key details, you can establish your value and better argue your case by outlining the things that make you an ideal candidate.
Though developing a document that contains all of this information is certainly helpful for you as you prepare for negotiations, you can also print this information and give it to the employer during the meeting so that they have a visual aid.
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3. Assess your wants and needs
As you prepare to negotiate your competitive salary, you should consider your absolute basic requirements. Create a monthly and yearly budget based on your desired lifestyle, and make sure to include things like:
Rent or mortgage payments
Cost of health insurance
You should also take into account things like how much you’d like to put toward savings plans. After you have gathered this information, you have a much better idea of how much money you need to make and the kind of benefits that are most appealing to you.
4. Outline your expectations
After you have progressed through the interview process, the employer typically makes you a job offer. Since you know important details, like your needs and the average salary for your position, you can clearly recognize whether a competitive pay package satisfies your expectations and, if not, you can then clearly state what you’re looking for. This is when you should utilize the list of qualifications and skills that you have created.
As you do this, you should be sure that you are still expressing your interest in the position and gratitude for the opportunity. Additionally, make sure that your tone stays both polite and positive throughout the interaction.