Offering competitive pay has always been a crucial part of any business’ efforts to attract and retain qualified employees. That hasn’t changed in recent years, either. In fact, 63% of those who quit in what was called The Great Resignation cited low pay as the reason.  

Here, we break down how to develop compensation packages that can help you bring in great new employees and keep them satisfied.

The Benefits of Competitive Compensation

By offering attractive pay rates and other benefits to potential and current employees, you’ll enjoy:

• Increased commitment from workers. Naturally, people will be willing to work harder when they feel like they’re being compensated fairly for their efforts. Along with that, competitive compensation shows you genuinely care about your employees–which shows them you’re as committed to them as they are to you.
• Higher-quality candidates. Offering compensation that meets or exceeds the average for your industry can make it easier to find the perfect people for open positions in your company.
• Lower turnover levels. Insufficient pay is one of the most common reasons people leave their jobs and seek employment elsewhere. By looking closely at your compensation, you can make other job offers less tempting to your business’ workers.
• Motivation for future growth. Employees gain value as they gain experience, and your pay structure should take that into account. Use the possibility of raises to encourage your workers to improve their job-related knowledge and skills.

Determining Competitive Pay

Put simply, offering “competitive compensation” means providing average or above-average wages compared to similar positions. To ensure your salaries are competitive, you’ll need to take a number of different factors into account:

Job Description

Your first step in the process of determining a competitive salary for an open position should be finding a baseline based on the job title in question. To get started, use the Bureau of Labor Statistics (BLS) to find compensation rates for this role. With that information, you can figure out whether or not the salary you’re offering stands up to the competition. 

Level of Experience

Of course, you’ll also need to adjust the salary you’re offering based on the skill level required for the job. If you’re trying to fill entry-level positions, you won’t need to pay as much as you would for a job that requires a high level of skill.

Your Company’s Industry

Are you working in a highly competitive industry like finance or tech? If so, you may need to offer higher salaries to attract qualified applicants.

Where You’re Located

Since the cost of living can vary based on where you are, local salaries need to reflect the economic realities of your region. The BLS also offers geographical wage information for major metropolitan areas, states, and regions which you can use as part of your research.

Supply and Demand

Finally, compensation can vary based on supply and demand in the same way that prices for products can. If you’re hiring for a role that’s in heavy demand but has relatively low numbers of job applicants, expect to pay more than you would for positions where job seekers are abundant.

Consider Direct and Indirect Compensation

The salaries you offer to prospective employees are an essential piece of the compensation puzzle, however, they aren’t the only element you should consider. Be sure to understand the difference between direct and indirect compensation:

Direct Compensation

Essentially, direct compensation is any type of money you offer to employees for doing their job. For the most part, you’ll offer one of these types of direct compensation to your workers:

1. Salary. Salaries are a preset amount of money given to employees as compensation for their work. Generally speaking, that amount is paid out in installments over a year-long period. Since they do not take time into account, salaries are particularly common when compensating employees who are ineligible for overtime.
2. Hourly pay. Employees who are eligible for overtime are usually given hourly pay. These workers must get at least minimum wage and overtime when they work more than 40 hours a week.
3. Commission. A commission is any type of direct payment based on performance, volume, or production. As a result, commission-based direct compensation can vary more significantly than compensation based on salaries or hourly pay rates. 
4. Bonus pay. Bonuses are used to give employees a financial incentive to go above and beyond in their job performance. They can also be given based on your company’s overall performance. (Since bonuses are not a type of base pay, you can give them to people receiving any kind of direct compensation listed above.)

Indirect Compensation

Along with these payment methods, you’ll also need to take some time to think about the indirect compensation you offer. That term often refers to insurance coverage, such as life, medical, dental, disability (short- and long-term), and vision. It can also cover various fringe benefits, like:

• Employee retirement programs
• Paid time off
• Flexible scheduling
• Paid holidays
• Company equipment
• Child care assistance
• Student loan support
• Educational benefits
• Advancement opportunities

Develop a Compensation Plan

While putting together a compensation strategy, you’ll want to make sure you can offer everyone in your organization the same benefits. However, you’ll need to be flexible by providing different compensation levels for other jobs. Follow these steps while developing your compensation plan:

• Take care of the basics. Start by creating a compensation outline that includes your overall objective, specific targets, and a general budget. Once that’s in place, choose someone (ideally an employee in your HR department) to act as compensation manager. You’ll also want to develop a compensation philosophy–that is, deciding how competitive you should try to be and if you wish to focus on direct or indirect compensation (or both).
• Figure out payment for individual jobs. This can be tricky, but one way to make things easier for yourself is by ranking the positions in your business and creating multiple payment tiers from there. You should also create payment levels based on seniority for each job description. With that in place, determine salaries/hourly pay rates for each position.
• Work out the details. Make sure to develop formal policies related to employee payment, work with leaders in the organization to get approval, clearly communicate any upcoming pay-related changes to employees, and adjust your pay structure as needed.

Prepare Your Offer

When the time comes to hire new employees, get off to a strong start by asking about payment early on. After all, this is almost certainly a high priority for both your organization and the candidate. You can ask about desired salaries during the interview itself or as a question on your application form.

Keep in mind, the goal of salary negotiations shouldn’t be getting people to settle for the lowest amount. Instead, you should strive to give new employees a fair salary they’ll be genuinely happy with. After all, saving a bit of cash on your payroll isn’t worth missing an opportunity to bring a qualified person on board.

Seek Expert Guidance

Developing a competitive compensation strategy can be challenging, especially if you haven’t gone through this process before. To save time and avoid taking any wrong turns, it’s wise to work closely with skilled business consultants throughout the process.
The team at People AK offers an unmatched level of knowledge when it comes to business strategy development–including the process of building compensation strategies. With their 40-plus years of experience and data-driven workflow, People AK’s team can help you adjust your approach to employee pay and start offering competitive compensation packages that will not only attract new employees but retain them.