Competitive pay isn’t just about numbers—it helps you hire top-tier candidates faster, reduce churn-related expenses, and avoid the hidden costs of disengaged employees.
In our conversation with compensation expert Susan Pyles, a seasoned leader with over two decades of experience, we discussed some practical strategies for building a solid compensation program.
Defining Competitive Pay
Competitive pay means ensuring that your compensation packages are both in line with market rates and fair within your own organization. Here’s what that looks like:
- External Market Competitiveness: This involves benchmarking each role’s market pay against a substantial number of competitors to make sure you’re attracting the best talent without overpaying or underpaying.
- Internal Equity: This is all about fairness inside your organization—every team member doing similar work should feel they’re getting a fair share.
Benchmarking External Market Competitiveness
To set competitive pay, you need strong, current market data. According to Susan, conducting a compensation study is critical.
Instead of piecing together reports from different periods of time or sources, conduct a comprehensive, single-source study. Susan emphasizes: “If you aim to have pay that is competitive, you need to rely on credible market surveys and databases that include your specific industry, organization size, and geographic region.”
Best Practices:
- Use reputable salary surveys and compensation studies. ERC, for example, publishes salary and wage data on an annual basis.
- Focus on real-time market rates for similar roles (or work with a compensation expert that can do this for you).
- Schedule periodic reviews (bi-annually or annually) to ensure your benchmarks remain accurate and align to the current state of the labor market.
Achieving Internal Pay Equity
While external data sets the market rate, internal equity ensures fairness among your own employees. As Susan explains, balancing external competitiveness with internal parity is key:
“You can maintain fairness by comparing similar roles not just by title, but also by experience, tenure, age, gender, ethnicity, and performance as applicable. Over time, if the pay for similar roles diverges significantly without justification, internal inequity can develop.”
Best Practices:
- Audit your internal base pay structure periodically to identify disparities among how similar roles are graded or categorized within your organization.
- Use consistent methodology when comparing pay among roles. Susan notes the importance of applying the same metrics, which prevents unintentional bias.
- Incorporate qualitative factors alongside quantitative data. This means discussing adjustments with the appropriate leaders to understand any unique circumstances behind pay differences.
The Benefits of Competitive Pay
Competitive pay is more than just doing the right thing—it’s tied to tangible business outcomes:
- Attracting Top Talent: Organizations with well-structured compensation programs attract the best candidates. When you offer market-aligned salaries, you position your company as an employer of choice.
- Reducing Turnover: Fair pay reduces employee churn. Companies with strong compensation frameworks can see turnover drop as a result of stronger employee loyalty and an increased perception of fairness.
- Boosting Productivity and Engagement: Put simply, employees who feel fairly compensated tend to perform better and remain more engaged.
Best Practices:
- Clearly communicate your compensation strategy internally to build trust and demonstrate transparency. Make sure your managers and supervisors are well-equipped to communicate your compensation strategy and explain the key components that matter to employees. Building a Fair Compensation Program
Creating a fair compensation program means setting market-competitive salaries while ensuring internal fairness. Here’s how to get started:
1. Gather Reliable External Data
Conduct a comprehensive compensation study using trusted sources to collect market data based on industry, company size, and region. Consider working with a compensation expert who can interpret this data accurately.
2. Audit Internal Pay for Equity
Review compensation for employees functioning in the same or alike roles, considering factors such as experience, tenure, performance, and diversity dimensions (age, gender, ethnicity). Use a standardized method for comparison across all departments to identify and address disparities.
3. Implement Changes
Develop a clear action plan based on your findings, including planned pay adjustments . Formulate a communication plan that includes the appropriate level of involvement and transparency with those directly impacted.
By following these steps—relying on solid external benchmarks, regularly auditing internal pay, and making data-driven adjustments—you can build a fair, competitive compensation program that supports both employee engagement and business performance.
Next Steps
Competitive pay is a practical strategy that pays dividends in attracting talent, retaining employees, and driving engagement and productivity.
If you’re ready to evaluate your compensation program, or learn more about our compensation consulting services, schedule a 30-minute compensation consulting session today!
