Competitive Pay: What Is It? (With Examples)

By Chris Kolmar - Nov. 16, 2020

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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.

Defining 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 Payscale, Glassdoor, 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.

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  • 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 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. So when you’re researching salary data, incorporate your experience level for more accurate results and expectations of how competitive pay should look.

Negotiating 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 consider how much you’ll have to pay for health insurance if your prospective employer doesn’t offer it 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.

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Chris Kolmar

Author

Chris Kolmar

Chris Kolmar is a co-founder of Zippia and the editor-in-chief of the Zippia career advice blog. He has hired over 50 people in his career, been hired five times, and wants to help you land your next job. His research has been featured on the New York Times, Thrillist, VOX, The Atlantic, and a host of local news. More recently, he's been quoted on USA Today, BusinessInsider, and CNBC.

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