How do you offer competitive compensation?

Part two in a five-part series on small business recruitment.

How do you offer competitive compensation?

One of the biggest challenges small businesses face when competing for top talent is putting together a compensation package. You can’t expect to compete for top talent if you aren’t offering compensation candidates will value. While this can be a challenge for some small businesses, it’s vital to getting the talent necessary to thrive and grow.

“Top talent or not, people want to get paid,” says Steve Strauss, senior small-business columnist at USA TODAY and author of 15 books, including “The Small Business Bible.”

But you can only go so far on pay alone, so you have to find where your advantage is, Strauss says. That can include culture, engagement, mission and other aspects of your business. “That’s where small businesses have the competitive edge. If you offer a fun place to work, people like coming to work, they’re engaged -- that makes a difference. They feel like they’re listened to and they like what they do. If you can give them that, you’re ahead of the game.”

Raj Sheth, founder and CEO of Recruiterbox, an ATS software developer with 20 employees, agrees. “There’s always a company that can outspend you.” He suggests offering stock options or equity in the business to help build a compensation package. “It’s an extremely powerful and tangible motive for somebody to pick your small company.”

“Competitive” can vary by local market and industry, but it’s important to get a ballpark figure through a salary survey or website. “Our strategy is to hit 75 percent of what the market is paying,” says Susan Strayer LaMotte, founder of exaqueo, a branding and talent consulting firm for startups and high-growth companies. If you’re able to meet only 50 percent of the market-rate salary, then you’ll need to make up for it with a stronger benefits package.

Design creative benefits and perks packages

There are many affordable benefits employees love that can help you build a competitive, valuable compensation package. In addition, look into new Affordable Care Act rules that may apply to your organization’s health care offerings. And in the next post in this series, we’ll look at perks that don’t cost a lot but help build your company’s unique culture.

Voluntary benefits

According to a survey by Towers Watson, almost half of employers expect to see voluntary benefits as a very important part of compensation packages by 2018, compared to 21 percent in 2013.

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Voluntary benefits are those companies offer as an option for employees to buy if they choose. By getting these through their company, employees can get the benefits at a lower cost than they would get by shopping for them on the open market.

These benefits traditionally include additional insurance for vision, dental, life, disability and even pets. They can also include group legal plans, financial planning assistance and employee purchase programs. Putting together a voluntary benefits package that employees can buy into if they’d like to is a great way to create value without adding to your company’s costs.

While larger companies may find it easier to offer more money to recruit top talent, small businesses have their own advantages. Identify yours to make the best possible value proposition to potential candidates.

  • Read part one in the series: How small businesses can attract top talent: Build a strong employer brand
  • Read part three in the series: How small businesses can attract top talent: Design creative benefits and perks packages
  • Read part four in the series: How small businesses can attract top talent: Write appealing job listings
  • Read part five in the series: How small businesses can attract top talent: Broaden your talent pool

    What Is Competitive Pay?

    When searching for a new role, you’ll often encounter job postings with the words ‘competitive pay’ listed as the salary information.

    The term competitive pay indicates compensation that is equal to, or above, the market rate for the given position in the same industry and location.

    This rate is used to attract talent to roles, as it conveys to candidates that their skills are being appropriately valued, not undersold.

    To be truly competitive, the remuneration needs to be within 10% of the average market rate.

    The omission of an exact salary suggests that the company may be willing to negotiate the salary with the successful candidate. This flexibility allows companies to secure the top candidates for a price that suits both parties and keeps talent from joining a competitor.

    This is where the term ‘competitive’ comes in – firms are competing to hire the best employees and, to do so, are willing to match or exceed the industry salary rate.

    What to Watch Out For

    The phrase competitive pay can, however, sometimes be used unhelpfully to mask the salary of a role. It allows for the piquing of candidate interest before revealing the exact remuneration level, which can lead to disappointment.

    Be aware of this and seek clarity on what is meant by competitive pay in each instance – so you know the base pay attached to a role before advancing further in the recruitment process.

    As the classification of competitive pay also involves consideration of the benefits package attached to the role, make sure to enquire about the benefits on offer.

    Competitive Benefits

    As mentioned above, for a remuneration package to be considered competitive, it is likely to include more than just the base monetary salary.

    A competitive offering may include:

    • Additional bonuses or commissions
    • A generous allowance of paid annual leave
    • A retirement plan with high employer contributions – a 401(k), IRA or Roth IRA plan
    • Stock options
    • Comprehensive health insurance
    • A life insurance policy
    • Paid parental leave
    • Childcare facilities or vouchers
    • The ability for flexible/remote working
    • Opportunities for professional development
    • Reimbursement of any tuition or training costs
    • A company car or expensed travel
    • Subsidized or free on-site catering
    • Subsidized gym access
    • A health and well-being allowance
    • A relocation bonus

    Companies often have varying scope to offer competitive monetary salaries depending upon their size.

    While small or new businesses or organizations may not be able to offer the same level of base salary as an established firm, they may offer a generous benefits package to increase the attractiveness of their offer and make it viable for prospective employees.

    Be sure to effectively evaluate any benefits package, considering the difference it will make to your monthly outgoings and long-term financial plans.

    What Influences Competitive Pay Levels?

    The competitive pay, or market rate, for a role can be impacted by the following factors, which can apply upward or downward pressure on salary offerings.

    Job Title

    Company salary rates are set according to job title, as these often indicate job function and level. They are an easy way for HR to categorize job levels and associated salary brackets.

    This means that your job title will have a direct bearing upon the amount of money you earn. When job hunting, do your research around the average salary for your job title, so you are aware of what the competitive rate should be.

    As an example, according to, the average salary of a Junior Marketing Executive based in New York is $47,342. The average salary of a Marketing Executive is $84,146.

    Be aware of the impact a simple word in a job title can have and, if you feel you are no longer at a junior level, don’t be afraid to seek a higher position.

    Alongside, websites such as PayScale or the Bureau of Labor Statistics are useful for exploring and comparing salaries by job title, as they also filter by industry and geographical area.


    The competitive salary rate is greatly influenced by the industry you are working within. For example, the pay a marketing executive receives will differ greatly according to the sector and type of company they work for.

    A junior marketing executive working for a non-profit can expect to earn less than their counterpart in an established retail chain or corporate company.

    If you are looking for opportunities to maximize your salary (and are flexible regarding which industry you work within), research the average salary for your current role across industries.


    The competitive pay rate for your job role will differ depending on your geographical location.

    As well as differences in the number of vacant job roles and qualified candidates, the cost of living varies according to state and specific location.

    It is more expensive to live in larger cities and attractive areas where property is in demand. This high cost of living has an upward force upon competitive pay rates.

    For example, the competitive salary in Los Angeles or New York is higher than the equivalent offering in Des Moines, Iowa. The rate in a city such as Des Moines is also likely to be higher than that on offer in more rural state locations.

    How do you offer competitive compensation?

    Competitive Pay: Definition, Examples and How to Negotiate

    According to the US Bureau of Labor Statistics, the annual mean wage for a marketing manager is $194,940 in New York compared to $121,730 in the state of Iowa.

    There are instances, however, of rural locations being well-compensated. If there is a low availability of skilled talent in the area and it is difficult to encourage professionals to settle, this may have an upward force on the competitive salary rate.

    It is important to conduct your research according to your location, so you can get an accurate picture of what a competitive package means in your region.

    Seniority Level

    Entry-level roles will have a much lower competitive salary rate than senior or executive positions. This is because the level of skill and work experience required is vastly different.

    For example, the competitive remuneration level for a senior marketing executive will be substantially higher than that of a junior marketing executive.

    When researching competitive pay in your industry and/or location, be sure to include your level of experience for an accurate impression. Experience may relate to educational qualifications, as well as the number of years of experience you have in the sector or in an equivalent role.


    The supply of qualified applicants suitable for the role will impact the competitive salary.

    If you are looking for a position as a senior marketing executive and there is a large pool of talent to select from, the competitive pay rate will be lower.

    The size of the talent pool may be impacted by location or by profession/role. Some professions are niche or highly technical and therefore have fewer fully trained employees in general, while others are popular and have many skilled practitioners.

    For example, the supply of software developers in large cities may be high due to the attractiveness of the location and impression that there are more opportunities available. This supply may drive down the competitive pay rate.

    Conversely, there are likely to be fewer suitable candidates for a senior software developer position in a more rural location. This may cause the competitive salary rate to increase due to increased demand on the part of employers.

    This may not always be the case, however. To return to our marketing manager example, the US Bureau of Labor Statistics shows that there is a higher level of employment for marketing managers in New York, than in Iowa (with an employment rate of 2.5 per 1,000 compared to 1.54 per 1,000).

    There are both a larger number of job roles in New York and a larger talent pool – a higher concentration of marketing managers to fill the vacancies.

    Yet, the competitive pay rate remains high, as the availability of professionals is proportionate to the high number of opportunities.

    This means the market has avoided saturation, and coupled with high cost of living, sustains a generous remuneration package.

    Tips for Negotiating Competitive Pay

    1. Use a Salary Calculator

    When preparing for a conversation regarding salary, use a salary calculator to get a good idea of what the average rate is for individuals with similar qualifications and experience to your own.

    You can also use salary calculators to inform your expectations according to sector and region.

    It is important to arrive at a salary negotiation with an accurate expectation of what a competitive rate of pay should be.

    Useful salary calculator sites include:

    • Good Calculators (search by state, occupation and career)
    • PayScale (refine using job title and location)
    • iCalculator, which allows you to compare salaries across states

    2. Research the Pay in Your Region

    Don’t overlook the importance of tailoring your salary expectations to your location.

    Look into the demand for professionals with your skill set in your region (by researching employment levels, the concentration of jobs and location quotients) to see whether your talents are sought after.

    If your occupation is in demand, you are likely to have more bargaining power within your salary negotiation and can adjust your ideal salary outcome accordingly.

    3. Know Your Ideal Salary, and Your Limit

    Before entering a salary negotiation, it is crucial to have considered your ideal outcome. Make sure you are clear on the level of salary you want for the role and what your minimum figure would be.

    Knowing and conveying these limits displays that you have put careful consideration into what a viable (and indeed desirable) level of salary looks like for you.

    Having these parameters in mind will help you to put forward a stronger case for having your worth appropriately valued.

    4. Be Confident

    When negotiating your pay level, have confidence in your own worth and the value you bring to the organization. Be approachable and open to compromise, but honest about your salary limits and deal breakers.

    As with any discussion with your employer, be punctual, polite and professional throughout.

    Final Thoughts

    Whether you’re looking for a new role or evaluating your current role, salary will undoubtedly play a large part in your consideration.

    A competitive pay packet should appropriately value your skills and reflect your desirability in the labor market.

    Researching how a proposed or current salary compares to the average market rate according to role, industry and location will help you to ensure you are receiving the right level of wage for your work.

    If you believe you are being undervalued, don’t be afraid to enter into a salary negotiation with your employer.

    Companies want to recruit and retain the best employees, and a competitive remuneration and benefits package is the strongest way to ensure talent is not lost to market competitors.

    How do you create a competitive compensation?

    Get a Pulse on Your Market. ... .
    Benchmark Your Job Positions. ... .
    Develop a Compensation Plan. ... .
    Identify Pay Inequities. ... .
    Communicate Your Compensation Strategy..

    What does it mean competitive compensation?

    When it comes to compensation, the label “competitive” refers to pay that is comparable to or better than the market value of a position. In human resources, a competitive salary is the average market rate for the role, plus a percentage of that rate.

    What are the three methods of compensation?

    Here are the three most popular types of compensation packages and a few notes on who might be most attracted to them..
    Straight salary compensation. ... .
    Salary plus commission compensation. ... .
    Straight hourly compensation..

    How essential is providing a competitive compensation package to an employee?

    When employees are adequately compensated, they feel motivated to come to work. Their morale remains high, and their job satisfaction levels increase. High morale ensures that employees are motivated enough to come to work every day and deliver work to the best of their abilities.

    What is the best compensation method?

    Meeting the Market In this strategy, employees are paid fairly and expected to perform well. As the most common compensation strategy, meeting the market ensures that your pay and costs match the competition. In strong financial environments, you can share bonuses and short-term incentives with employees.

    How do you assign a compensation?

    How to Set Compensation in 5 Easy Steps.
    Define the job. ... .
    Price the job. ... .
    Determine the job's value to your organization. ... .
    Review where a job fits within a grade/range. ... .
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