Competitive Compensation: Advantages, Risks, and How to Achieve It
It’s no secret that attracting and retaining top talent is an ongoing and evolving strategy for any business and not something you “set and forget”. While there’s many components to incorporate into your strategy to attract and retail talent, one of the most important items is a competitive compensation package. This blog post will discuss the risks if you don’t have a competitive compensation package and the steps to take to create a competitive compensation strategy.
Why Should You Have Competitive Compensation?
- Attract Top Talent: if your compensation package aligns with or surpasses the industry standard and you have a positive reputation of your company culture, you’ll become an employer of choice, drawing in top talent who are motived and skilled.
- Retain Top Talent: when employees feel that they are being paid fairly, they are more likely to stay at your organization and less likely to explore job opportunities.
- Motivate: when people are paid fairly, they are more engaged and focused on their work, resulting in higher productivity. Essentially, getting your employees to stop thinking about their pay, will have them thinking more about their work. Taking it a step further, if you can tie components of their compensation to business goals, you will get to those results faster.
What Are the Risks of Paying Below Market Standards?
- High Turnover: if your compensation rates are below the median of market rates, you’re likely experiencing high turnover as employees are leaving for better paying roles. This will result in incurring direct cost of recruitment and training, as well as indirect costs of losing institutional knowledge.
- Low Engagement and Morale: as mentioned above, when employees perceive they are compensated below industry standards, this will result in low morale and engagement, allowing productivity to suffer. This can also affect your overall culture if it’s perceived wide enough.
- Struggle to Attract Talent: paying below market standards will make recruiting and hiring much harder. You will receive fewer applications, have more withdrawals throughout the process, and potentially hire people who won’t be a good addition to your organization.
How Do You Develop a Competitive Compensation Strategy?
- Market Data and Benchmarking. To know where you measure up against your competition on the bell curve, you need reliable market rate data. uptreeHR can help you with this part, we have access to the largest and most reliable compensation data for the US and Canada. Now, we can benchmark your roles against the market and determine where you may be leading, matching, or lagging and develop a strategy to move forward based on your compensation philosophy.
- Compensation Philosophy. Determine where you want to be in the market – leading, matching, or lagging – and ensure that aligns with your values, goals, and financial abilities.
- Total Rewards. As much as base salary is very important, what are the other components of your total rewards package that will attract and retain talent? Be sure to clearly communicate these externally to job seekers and internally to remind employees (a good time to do this is at your annual compensation review time). Your total rewards package will include measurable items such as bonuses, equity, healthcare benefits, retirement benefits, paid time off, discounts, as well as unmeasurable perks and benefits such as flexible working hours, remote/hybrid work options, annual company retreats, coaching, mentorships, recognition programs, the list can go on!
In our fast-changing world, it’s imperative that you are revisiting your compensation strategy and know where you sit in the market. Attracting and retaining your top talent is going to allow you to achieve your business goals faster and help grow your business!
Michelle MacFadgen is a Human Resource Consultant with uptreeHR Inc, a Human Resource business partner for small to medium sized businesses. Michelle and the team are based in Halifax, Nova Scotia.
To book a complimentary 30-minute consult with Michelle, click here.
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