Knowing how to set competitive wages is essential for employers and strategically minded HR professionals who want to see their company succeed and thrive. Competitive wages are central to fundamental elements of business strategy including compensation, productivity, and the profitability of the company.
If an employer offers insufficient compensation, they will have trouble attracting and retaining employees. If this happens, turnover costs can quickly spiral out of hand, and the company may be left with an underqualified, understaffed, unengaged workforce. In contrast, offering wages that are too generous can have a negative impact on the company’s profitability, as employee wages are often one of the largest single expenditures for many businesses.
What exactly constitutes competitive wages can vary, but it is most often based on industry-standard wages in the region in which the business is located. For unskilled positions and in situations where the availability of job seekers is far greater than the number of jobs available, “competitive wages” might actually mean just over minimum wage. In contrast, for positions requiring significant education or skills, managerial and executive positions, and even in unskilled positions where there is a shortage of available job applicants to fill empty positions, “competitive wages” may mean compensation that is significantly greater than legislated minimums.
So what can you do to ensure the wages offered by your organization are truly competitive?
1. Evaluate the job-related factors that determine compensation
Several job-related factors go into determining compensation, and it is important for you to have a good grasp on those factors before you set compensation levels. You might consider administering a Job Evaluation Questionnaire if your job descriptions are out of date, or if you don’t have completed job descriptions for every position.
2. Evaluate current compensation
Once you have information on each position in your company, you need to collect and compare compensation information. There are a variety of ways to accomplish this. One of the most popular methods is to create a salary grid where you plot the current salary of each position against the duties, experience, and qualifications for the position.
3. Conduct a salary survey
Calibrating your company’s overall compensation with the larger market is important. In order to do this, you will need information on what other employers are paying. One way to gather information is to speak to other employers in your region and ask what compensation they are offering their employees. You can also look online for relevant salary information. There are a variety of statistics aggregator sites that offer salary information, searchable by position.
4. Determine your compensation strategy
There are three basic compensation strategies you can choose from. The first strategy is a market lead strategy. This means paying higher wages than your competitors. The second strategy is a market match strategy. This means paying roughly the same as similar employers in your region. This is the most commonly used strategy in many industries. The final strategy is a market lag strategy whereby you pay less than the going rate, while still meeting or exceeding legislated minimums. The strategy you select will vary based on your company’s circumstances. Once you know and understand your compensation strategy, you can determine what “competitive wages” are for the specific position you are hiring.
Setting competitive wages is essential to running an efficient and competitive business. There are perils associated with offering too much or too little in the way of compensation. With a methodical approach that makes use of key data, you can set compensation levels that will help you attract and retain the talent your company needs to meet its strategic goals.
Download our FREE Job Evaluation Questionnaire to help ensure that each position is measured on the same basis in order to help determine its relative position within your organization.
Source: Statistics Canada: Income, pensions, spending and wealth
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