What is a Competitive Salary and How HR Can Negotiate One?

Many organisations are seeing the benefits of implementing a competitive salary, but what are the key factors HR should keep in mind when negotiating salary? 

When it comes to a job, it's no secret that a good salary is something that every candidate and current employee looks for. Whilst it is always on a company's mind to save cost where they can, it's important to ensure this doesn't come at the expense of their staff. Providing a competitive salary, and being open to salary negotiations is beneficial to employers and employees alike.

Offering competitive salaries can help employers to develop effective pay structures, boost morale across the working environment, and highlight your company culture as a whole. 

Contents

  • What is a competitive salary?
  • Wage vs. salary
  • Developing a compensation plan
  • How to implement competitive pay practice
  • How to negotiate a competitive salary
  • Benefits of offering competitive salaries

What is a competitive salary?

Simply put, a competitive salary is one that is a salary that is somewhat around the industry average or higher for a given position. The key word here is 'competes', meaning that the salary included in the job offer is open to negotiation for both employee, and the employer. 

Job advertisements that have a salary that is stated as competitive often don't have a figure included. By leaving out the salary on the job advert, you are avoiding candidates applying simply for the pay, allowing you to rest easy knowing that any candidates who are applying for the job are doing so because they are genuinely interested in that role.  

However, this also opens the door to negotiation from both an employee's perspective, and HR's. Worker's in the modern world value flexibility very highly, and this is also true when it comes to their salary. It allows for a potential candidate to negotiate the scope of a new position, to see if you are willing to work with them to make it possible.

A competitive salary allows workers and employers to negotiate certain needs or desires into the contract that they otherwise would not be able to. 

Wage vs Salary

Competitive pay also applies to hourly employees. The term wage and salary are often used interchangeably, however they can refer to specific types of working.

While hourly employees don't have a contract whereby they have a set wage for the month, it does not mean their hourly rate cannot be considered 'competitive'. Hourly employees should feel no less valued and a competitive hourly pay is still important to attract the kind of workers you want.

Jobs that are advertised as hourly employment may not offer as many benefits as a salary package, but there is no reason that their pay should be significantly different to salaried employees, particularly in cases of overtime.

Compensation for hourly employees who work overtime is a good way to show you care. Overtime is often a natural part of hourly work, and so offering additional pay for those employees who are asked to work more hours than initially agreed upon is an effective way to offer competitive hourly pay, and to demonstrate that their extra work is valued. 

Developing a compensation plan 

A compensation plan is a key aspect of a competitive salary, and is to be valued not just by the employee but by HR and line managers. HR departments and employers can design attractive compensation plans and benefits packages to help attract talent and retain existing talent. A salary is about more than just the pay, it is about other benefits, bonuses, and perks. 

As a HR professional, it is always worth bearing in mind that a salary negotiation can involve working potential compensation plans and packages into the job offer. Being flexible with compensation and benefits during salary negotiations makes it more likely for new candidates to accept a job offer as they are not being forced into a set of fixed set of rules and employees can tailor their remuneration to their needs.

How to implement a competitive pay practice 

Offering a salary that is competitive in job advertisements can make many HR departments fearful of causing upset to their staff in case they find out that potential new candidates are being paid more than them. 

If you as an employer decide you want to implement a competitive pay practice, you need to do your research first and develop a strategy for best practice. You must be prepared for the fact that new employees will want to negotiate salaries and benefits with you. In the same sense, you as an employer can also negotiate salary and expectations with the employee, which may be dependent on their experience and skills. 

  1. Know your industry
    Do your research on the market. It's possible that the salary you are offering for a job position is below the market average. It's important to always keep on top of the salaries in your industry to ensure the most talented job seekers are coming to you, but also that your current employees aren't on the job search for roles elsewhere.

  2. Check what your current employees earn
    Keeping up on the salary data in your industry helps you to establish the market rate for new employees, but it also helps you to establish whether your current employees are receiving the kind of wages that competitors are paying their staff. Some employees may be due a pay rise. This can mean that they are less likely to go looking through the job market for a new role, saving you valuable recruiting and onboarding resources.

  3. Open communication with your staff 
    Communication to your employees about your pay structures and salaries is an excellent way of making them feel valued. If you include them in your decisions or changes to your salary benchmarks, it can help to motivate both new and existing employees to help them reach goals.

  4. Advertise
    Finally, state in your job advert that you are offering a competitive salary. This lets any people who are interested in working for your company know that there is room to negotiate a salary. 

 

How HR Can Negotiate a Competitive Salary

Implementing a competitive salary gives breathing room for negotiation for both parties, and as a result, is beneficial for both employer and employee.

The interview process is often seen as the sweet spot for competitive salary negotiation to happen. As a HR professional, this is a great time to understand what each individual candidate values in their job offer.

Ask Open Questions

In order to negotiate salaries effectively, actively listen to the candidate about their expectations and wants. Ask a candidate questions relating to their current or previous role, and what kind of salary and compensation packages they would be expecting to benchmark your responses.

Formulating a set of open questions to ask the candidate is a great way to prepare yourself for salary negotiations, try to keep these creative to avoid sounding like a corporate parrot!

Try open questions like:

  • What would be your ideal working pattern?
  • Rank these factors from 1-3: flexibility, remuneration, benefits.
  • How do you see yourself working best?

A candidate's responses to open questions probably won't end up with them quoting a number - but their responses may surprise you and provide valuable insight to inform the salary and compensation package that you offer to them. 

Honesty is the Best Policy


Offering a competitive salary is a means of attracting the top talent to your organisation, but as such these candidates will probably be involved in multiple job processes at once. Be transparent wit the candidate about what your organisation can offer them in terms of benefits to build rapport and trust with your potential hire before they start.

The way in which an HR and employer approach salary negotiations is a reflection of their work culture.

Benefits of Offering Competitive Salaries 

Attracting Top Talent

The truth is, low salaries are less likely to attract talented employees. If you want to attract top talent, then offering a competitive salary is the right way to go. Attracting employees and top talent is hard to do when there are other jobs offering higher wages and better benefit packages. 

If an employee is experienced in the position they are applying for, it's going to be likely that they know exactly what they're worth and will be seeking out a job that values their skills and assets. Implementing competitive pay or pay negotiations increases the likelihood of attracting the kind of talented employees you want. It also increases the chances of a candidate accepting your job offer.

Improved Employee Retention

Competitive salaries benefits HR and employers as they are more likely to be able to not only attract top talent, but retain it. One of the main reasons responsible for employees for a new role and turnover rates is salary. If an employee feels that they are being underpaid in their current job, they may start looking elsewhere. 

A common misconception is that paying employees as little as they can get away with will save an organisation money. In the immediate short term, this may seem true, but in the long term low salaries can be detrimental to a company's retention and employee turnover rates and lead to increased recruiting and onboarding costs. 

Increased Employee Satisfaction

Retaining full-time employees by paying them higher salaries also leads to improved satisfaction in the workplace. Though employee satisfaction is often a difficult metric to track, HR professionals should monitor overall morale by keeping in regular communication with line managers and teams. 

You may also be interested in: How can HR Motivate Employees

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