A Guide to Competitive Compensation for HR Professionals: What You Need to Know Before You Grow

Around the world, 40% of employees are considering quitting their jobs.¹ This is a difficult statistic to contend with for HR teams—especially when, in many industries, the cost of employee turnover is expensive. It costs an average of 33% of an employee’s annual salary to replace them.²

If you want to retain your employees for years to come, you need to provide them with competitive compensation. So, what does competitive pay mean?

Below, we’ll define competitive compensation and break down its key components.

Competitive Compensation Meaning

Competitive compensation refers to employee compensation packages that meet or exceed the average salary range for similar positions in specific geographic locations. In addition to attractive salaries, these packages often include enticing benefits, bonuses, and non-monetary perks.

The purpose of providing competitive compensation is two-fold—considering that many employees quit their jobs in pursuit of a pay increase, offering a competitive compensation package can help attract qualified applicants and prevent existing employees from getting poached by competitors. Here are some labor statistics that support this claim:

• In 2023, 96% of workers were looking for new positions to obtain higher pay.³
• 56% of employees said a desire for higher pay is their primary reason for looking for another job.⁴
• 41% of employees said they’d consider accepting a job offer from another company if it came with a pay increase of at least 5%.⁵
  

As you can see, today’s workers consider job hopping an effective strategy to secure a higher salary. By ensuring compensation packages are competitive, companies are less likely to face employee turnover.

What Factors Influence Competitive Compensation?

When you’re trying to determine the right compensation package for a given job title, you’ll want to consider the following factors:

• Geographic location – The cost of living can vary significantly from one location to the next. As an employer, you must ensure your job’s base pay enables your employees to afford their area’s cost of living. Otherwise, they may have no choice but to take a competitor’s offer.
• Industry averages – Since your job applicants will compare your total compensation offerings to your competitors, you should too. You can do so by conducting an industry analysis. Once you know what your competitors are offering, you can find ways to make your compensation package stand out.
  

• Availability of talent – Some locations have a lower supply of skilled workers than others. If you operate in one of these locations and require specialized candidates, you’ll have to pay a premium to obtain them.

Once you’ve analyzed these factors in relation to your company, you can assess what you need to offer to make your compensation package outshine the competition.

What Does Competitive Compensation Include?

A generous base salary or hourly wage is just one component of a competitive compensation package. Some elements of indirect compensation include:

• Health insurance – While many countries pay for their citizen’s healthcare, some tie health insurance to employment. The United States is a notable example. In these countries, comprehensive health insurance can be a compelling benefit. In fact, 88% of surveyed workers said that quality health benefits are important to them.⁶ Other types of insurance that companies may provide include accident, illness, disability, and death insurance.

• Other types of insurance – Outside of health insurance, companies may consider providing life insurance, disability insurance, accident insurance, illness insurance, and death insurance. These types of policies are often required; however, many candidates seek them out when job hunting.
  
• Retirement plans – Employer-sponsored retirement plans encourage employees to set aside a portion of their paycheck each month to put toward retirement. Some of these plans allow employers to match their employees’ monthly contributions, compounding their retirement savings.
  
• Paid time off (PTO) – PTO allows employees to take a set number of days off work each year without impacting their earnings. Employees can use PTO for any reason, from going on vacation to recovering from a virus. Companies that offer generous or unlimited PTO can distinguish themselves from their competitors.
  
• Remote or hybrid schedules – While not technically a component of compensation, hybrid and remote schedules can considerably enhance the attractiveness of a job posting. After all, 97% of employees want to work remotely “at least some of the time,”⁷ while 60% of workers would quit their jobs for a fully remote position.⁸ Ensure you also consider remote work compensation guidelines.
  

The ideal combination of these in your benefits package will depend on your company’s industry and size.

As you construct your compensation packages, make sure that you pay your employees fairly and equitably. You can do so by identifying and rectifying any pay gaps that exist across gender or racial lines. Work with your human resource team to adjust your salary structure in a way that’s aligned with fair pay policies and ethical standards.