Competitive Compensation - Show Me the Money
It’s no secret that top talent expects to be paid top dollar. Even with a developed recruiting program, engaging work environment, and great work-life balance, it will be difficult for your organization to attract and retain the best employees without a competitive pay program. There are a number of aspects to a sophisticated or market-leading compensation or total rewards program. The focus in this article is on pay practices that are not helping your organization to be competitive in today’s labor market.
Benefits of a Competitive Pay Policy
Though the initial investment often appears steep, the benefits of competitive compensation as a part of a total rewards program are numerous. Here are a few ways higher salaries can benefit your organization:
- Generous compensation allows your recruiters to aggressively target top talent for key positions.
- Competitive pay levels can serve as a way to create “brand recognition” for job seekers. It differentiates your organization from other employers.
- If you are currently unable to offer an ideal benefits package or workplace environment, a competitive pay policy may be the best and most immediate way to acquire talented employees.
- Bonuses tied to the productivity of the business encourage your employees to take ownership and share in the success of the organization. When success is rewarded, your employees are driven to perform, driving your organization forward towards achievement of strategic business results.
- Even the best managers cannot motivate underpaid employees. While pay isn’t everything, feeling underpaid and undervalued can be demoralizing for employees and they will eventually move on. Better compensation will help attract a better-quality performer.
- Offering above-average compensation allows you to be more selective in the hiring process, ensuring a better fit when filling a position.
When designing a compensation strategy, a first step is to identify if you have a competitive pay issue.
- Consider a compensation benchmarking study of your organization’s positions to determine how your rates of pay compare to different pricing points in the market.
- Track how often candidates turn down job offers for each position. Recruiters should inquire as to the reason for the offer rejection and track this information. If you are seeing patterns or ongoing challenges recruiting for a specific position, it is wise to consider a position review, including looking at compensation to see whether your hiring range is low to the market.
- Having trouble retaining good employees or employees in a specific position? Use exit interviews and stay interviews to solicit information from outgoing and current employees to get a sense about what is motivating your employees to stay, or move on. If compensation is cited, this is another reason to take a look at whether your pay ranges or pay practices are low to the market.
For most positions, compensation strategy should be based on:
- The extent to which qualified candidates are available in targeted recruiting markets.
- The aggressiveness of other employers competing within those markets and your organization’s stage of growth.
- Your organization’s reputation in the marketplace to recruit qualified employees (i.e., financial resources to pay employees, perception of the