Are You Paying Competitively?
Why Competitive Pay Still Matters Even in a Budget-Conscious Environment
Business owners and HR leaders often face the same core question: “Are we paying people competitively?” In a tight labor market where job seekers can check salary ranges with a few clicks, the risk of falling behind or overpaying unnecessarily has never been greater.
But what does “competitive pay” actually mean? And how do you figure out where your company stands?
What Competitive Really Looks Like
Competitive pay isn’t about matching the highest offers out there. It’s about knowing your labor market, identifying where you want to be positioned (top third? median?), and compensating accordingly.
Small and mid-sized businesses often find themselves caught between trying to retain talent and staying within budget. Without a clear compensation strategy, raises and offers tend to be reactive rather than strategic, leading to internal inequity, turnover, or bloated payrolls.
A structured benchmarking process helps avoid these pitfalls. It ensures that your pay decisions are aligned with both the market and your business goals.
How to Assess Pay Competitiveness
Here’s a simple framework I use with clients:
1. Identify benchmark roles: Focus on the most common or critical positions first.
2. Select the right market data: Industry, geography, and size matter.
3. Choose a positioning strategy: Do you want to lead, meet, or lag the market?
4. Adjust for internal realities: Incorporate skills, experience, and performance.
5. Communicate your strategy: Employees don’t need exact figures but they do need to know you’re intentional.
This approach builds transparency and confidence. It also signals to employees that your compensation practices aren’t arbitrary.
When Companies Don’t Benchmark
Without benchmarking, pay decisions get political. Managers base raises on who complains the loudest, or who’s hardest to replace. Recruiting becomes expensive, and retention suffers when long-tenured staff learn new hires earn more.
What to Do Next
If it has been more than a year since you reviewed your compensation data or if you’ve never done a structured review, it’s time to act.
Start with 5–10 key roles. Get market data that fits your industry and region. Then decide: where do you want to be positioned, and why?
Competitive pay is about knowing your numbers, making smart decisions, and building a pay story your employees can trust.
Feel free to reach out if you want to explore this further for your company.
How does your compensation stack up?
Participating in a compensation survey is a wise investment in your company’s future.
Learn more about the 2024 HR Consulting Industry Compensation Survey.