Competitive Pay: What Is It? (With Examples)

By Matthew Zane - Jul. 19, 2021
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The language of job searching is not always straightforward. Anyone who spends time going through job postings will see one phrase pop up fairly often: competitive pay. If you’re here, you’re probably wondering what the heck that means.

Offering competitive pay is one way for employers to attract and retain top talent in their industry. Learning to evaluate what makes a pay rate competitive will work to your advantage through your job search, application, and negotiation processes.

What Is Competitive Pay?

Competitive pay means a compensation package that is valued at equal to or greater than the market rates for a given position in a given industry and geographical area.

The word “competitive” implies that the company uses its salary rates to compete with similar companies for top-quality candidates. It can also often mean that an employer is willing to negotiate salaries to lock down the best and brightest applicants.

For those in Human Resources, competitive pay means offering a wage within +/-10% of the average market rate for a position. But competitive pay is about more than just base salary (the minimum monetary compensation an employee can expect to earn before adding bonuses and other forms of payment).

It also includes offering a competitive employee benefits package. Things like more paid vacation time, flexible schedules, more robust retirement plans, professional development opportunities, bigger bonuses or commissions, stock options, better health insurance plans, etc. all factor into a competitive benefits package.

Smaller firms may not be able to compete in terms of base salary but can still offer competitive compensation packages by boosting perks in other areas, monetarily or otherwise. In other words, the numbers don’t tell the whole story, so be sure to investigate what exactly makes an employer’s offer competitive.

What Does Competitive Pay Mean for You?

The meaning of competitive pay changes depending on market rates, which are affected by the following factors:

  • Job title. Your starting point for determining what competitive pay looks like for you is researching what the salary range is for your job title. Use resources like Zippia, PayScale, and the Bureau of Labor Statistics to determine the average market rate for your desired position. You can then assume that any salary that matches or exceeds this average rate is truly competitive.

  • Industry. The next aspect of competitive pay to consider is the industry. A great tactic to net you the highest possible salary is to apply for similar positions in different industries. To do this, you’ll need to dig deeper to see how each industry values your job. For example, the typical salary of an HR rep might vary considerably depending on if they’re working in the energy industry or education.

  • Location. Just as the cost of living and minimum wage rates differ from state to state, so does the definition of competitive pay. An employee in San Francisco should expect higher compensation rates than someone in the rural midwest, for instance. The more specific information you can uncover in your research, the better equipped you’ll be for identifying what pay packages are genuinely competitive in a given region.

  • Availability. Everyone knows the law of supply and demand: the rarer and more sought after something is, the more valuable it is, and the more common and less desired something is, the less valuable it is. This principle applies to the job market as well as anything else.

    So if you have a highly specialized skill set that’s difficult to find and in high demand, competitive pay may imply even greater compensation than that +10% market rate we discussed earlier. On the flip side, if you have very basic skills and are one of dozens of qualified candidates, you can expect competitive pay to be on the lower end of the spectrum.

    Remember that location also affects availability. There might be many computer programmers in Silicon Valley, but the Rust Belt might not have such a deep pool of candidates.

    Tip: If you can find out how many other candidates are applying for a job and for how long the company has been trying to fill the vacancy, you’ll have a better idea of the supply and demand for the specific position in question.

  • Experience level. Entry-level applicants with little or no experience can expect lower compensation rates than those with a wealth of experience applying to higher-level positions.

    Things like education level, certifications, awards, and practical experience all determine your experience level. When you’re researching salary data, incorporate your experience level for more accurate results and expectations of how competitive pay should look.

What Does a Competitive Compensation Package Include?

Besides a salary commensurate with the applicant’s experience level and expertise, American employees have certain expectations about what a compensation package should include. At a minimum, any job offering competitive pay should include the following in its benefits package:

  • Employer-sponsored health insurance. Health insurance consistently ranks as the most important benefit for employees in the United States. The cost of insuring yourself privately is exorbitant in the extreme, so having this expense reduced significantly through high-quality employer-sponsored health insurance is a massive boon.

    Most companies also offer dental and vision insurance plans. Some even offer more advanced health care options, like flexible spending accounts.

  • Paid time off. Employees place a high premium on the ability to take time for themselves every now and then. Not having to worry about your income just because you want to take a vacation is a massive quality of life boost for employees.

    Some companies offer unlimited vacation policies, which sound great in theory but do come with drawbacks (namely, not being paid for unused vacation days). Studies show that the average American has around 8 days of PTO each year, so offering more than this will be competitive for most job openings. Note that senior-level people can expect more days of PTO.

  • Retirement plan. Saving for retirement is tough, but with employer-matching programs that lower your pre-tax income (and your tax burden), it becomes easier to plan for the future. 401(k) plans are the most common, but some companies will set you up with IRA or Roth IRA plans. Competitive applicants expect a higher rate or cap on employer matching contributions to these plans.

Other common perks include things like:

How to Negotiate Competitive Pay

Salary negotiations are always stressful and awkward, but if you don’t advocate for yourself, no one else will. Employers won’t pay more than they have to, so it’s up to you to convince them of your value. Remember that it isn’t just your initial pay that’s on the line – your starting salary determines the trajectory of your earnings over your career, so take this seriously and think long-term.

  1. Determine your goals. The first step in any negotiation is determining what you want out of a compensation package. That means prioritizing: do you care most about earning a big paycheck, having competitive bonus structures, having a good health insurance plan, creating a flexible schedule, or something else?

    Every individual will value non-monetary perks differently, so assess what your must-haves are before starting your research, let alone negotiations.

    You must also consider how much you’ll have to pay for health insurance if your prospective employer doesn’t offer generous plans or how much more you’ll need to dedicate to your retirement savings if the employer doesn’t provide a good 401(k) matching program. With this information, you’ll have a fuller picture of what various compensation packages are worth.

  2. Know your value. Remember all that research you did on what typical pay rates are for your industry, position, location, and experience level? Time to put it to use. By knowing what the average salary is for a candidate in your situation, you’ll know what a competitive salary should look like – at or above that rate.

    Aside from finding this number, you should also take time to self-assess. Reflect on your achievements and how your experience has boosted your value. This helps prevent you from selling yourself short on salary requirements and develop confidence walking into negotiations.

  3. Stay strong. You have a list of wants and needs, as well as the data that supports why an employer should meet those conditions. Don’t lose sight of those two things. You’ll need to state your case, and while you should always be respectful, don’t cede ground on essential topics.

    Employers have access to the same salary data you do (and then some), so showing them that you’ve done your research proves that you’re not so naive to think an offer on the low end of the salary range is genuinely competitive.

    Use your data to present your case and be ready for a compromise offer or an outright refusal. Consider the low end of what you’re willing to accept in the case of a compromise and determine whether the company is still meeting your minimum requirements. Also, consider the opportunities for advancement, because that’s worth something as well.

  4. Keep up with trends. Even after you’ve successfully negotiated a truly competitive salary, the journey isn’t over. Your job’s responsibilities, market rates for similar professionals, and the value of new certifications or qualifications are all factors that change as your career continues. As you’ve seen, those changes all bear on what constitutes competitive pay for you.

    Consistently reevaluate what constitutes a competitive salary, so you always receive compensation in line with what you’re worth.

The Importance of Offering Competitive Pay

For employers looking to attract and retain top talent in the field, offering competitive pay is paramount.

Besides making recruitment easier, competitive pay also decreases turnover, boosts morale/productivity, and creates a more robust corporate culture. Put simply, competitive pay motivates employees to work to their full potential.

As we’ve discussed, competitive pay involves many components. Even small companies that are unable to compete with larger firms in terms of pure cash compensation can offer perks like flexible schedules, more paid vacation time, or continuous training opportunities as a way of staying competitive.

Just as we recommended that employees regularly reevaluate what constitutes a competitive salary for them, employers should also continually adapt compensation policies to keep pace with the job market and their employees’ needs.

Losing employees to better-paying competitors has a cost of its own – projects might be delayed, and the processes of recruitment, onboarding, and training aren’t free. Not to mention that office morale takes a hit as people start departing for greener pastures.

Overall, employers should view employees as appreciating assets, not expenses. With competitive pay, you ensure that investments made in your employees are worthwhile, both short-term and long-term. And when headhunters come around to poach your top talent, they’ll have a more challenging time wooing them away if you’re already paying them competitively.

Final Thoughts

If you want to be compensated fairly, knowing what constitutes competitive pay for your work is the first step. Whether you’re asking for a raise because you feel you’re underpaid or your negoitating an appropriate salary after being offered a job, be prepared with data and a firm belief in the value of your contributions.

Before you ask for more on your base pay, remember that other elements of your compensation package are also negotiable.

A higher salary is great, but consider how much things like having more paid time off, a more generous health insurance plan, or a better path toward saving for retirement are worth to you before you disregard an offer that doesn’t meet the exact salary you had in mind.

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Author

Matthew Zane

Matthew Zane is the lead editor of Zippia's How To Get A Job Guides. He is a teacher, writer, and world-traveler that wants to help people at every stage of the career life cycle. He completed his masters in American Literature from Trinity College Dublin and BA in English from the University of Connecticut.

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