3 reasons to pay a competitive salary
Estimated Read Time: 4 minutes
Wages may be classed as an operating expense, but like any good investment, strong staff salaries can deliver healthy returns.
Your business may have a great product or service but the true strength of the firm lies with your people – and top talent deserves to be well remunerated.
Salary levels are still a crucial element when it comes to attracting and retaining the best people.
Quite simply, companies that do not offer competitive pay packets can put themselves out of contention when it comes to sourcing top talent.
What is a competitive salary?
A competitive salary refers to the total remuneration and benefits package an employee receives being at or above the standard market rates.
This amount can vary according to various factors including the seniority of the role, the industry of the profession, supply and demand for the job, and where the hiring company is located.
How do you determine a competitive salary?
It is important to regularly benchmark the salaries you offer against the broader market to ensure you are in-line with or exceeding employee expectations in order to attract and retain the best talent.
This includes monitoring industry trends, referring to government or professional salary forecasts such as the Robert Half Salary Guide, and mapping the level of demand for the skill or technical expertise you are looking to hire against the availability of talent.
This gives an outline of what the market rate for a profession is, which can then be measured against other variables including industry, company size and geographic location.
The hidden cost of paying less
In the skilled and professional jobs arena, an employee’s departure can often cost their company more than double their annual salary, without taking into account the intangible cost of lost productivity.
Other sunk costs associated with losing an employee include the expense of hiring and training a replacement, or having to spend resources for onboarding programs.
These are financial repercussions that companies can avoid simply by instituting a competitive salary policy. A high turnover rate also reflects poorly on a company, impacting the collective knowledge base, and damaging staff morale.
"The two words that spring to mind for me would be value and quality when paying a candidate the right amount of money. We all want good value and the highest quality from what we pay for something. These are intrinsically linked to how much you pay a candidate and making sure you're paying competitively. If you are paying a candidate the right amount of money for their worth and value, you are going to get a highly motivated candidate joining the businesses. If you are paying less than the market rate, you are having to find out the hidden costs of hiring someone who gives you less quality and less value. As such, you may have to rehire for the role,"
says Will Cannaby, Director at Robert Half and specialised finance and accounting recruiter when asked 'Why is it important to pay a competitive salary?'.
Let’s take a look at three ways that a smart salary policy towards paying a competitive salary can support your business.
1. A competitive salary shows you care
Let’s approach the issue at a positive angle – a competitive salary package incentivises employees to do their best for the organisation, promoting employee engagement and encourages loyalty.
Having proper salary policies in place is a tangible way for a company to show its commitment in taking care of their people, and this is likely to be reciprocated if and when the business finds itself in tough times.
A carefully constructed salary policy shows you are committed to your team, and this in itself can be a tremendous incentive for staff.
Your concern for the wellbeing of your employees filters through to office morale and productivity, and will hopefully be reciprocated if the business finds itself facing tough times.
2. Low salaries are false economy
Successful employee retention should always be a core business goal. Higher remuneration however is still a key reason for leaving a job. In order to attract and keep top talent on the payroll, proactive companies should adjust their remuneration policies to ensure their offers match or exceed averages in their location and industry.
When employees leave your company the impact on your organisation can be significant. Project timelines may suffer – costing the company additional time and resources to resolve.
Re-staffing comes with an additional cost burden. Because the recruitment process takes many resources like developing and publishing a job ad, time for screening applications, invitations to interviews, rejection letters, time spent for the interview, onboarding and training costs etc., the financial resources can easily escalate if companies need to find a new hire.
As well, not having the right person on board may mean the company isn’t able to reach its growth targets. The specific consequences of a bad hire however are not limited to an additional expense for recruiting again. It can also affect office morale. These financial repercussions can be avoided simply by developing a competitive salary policy.
3. Your people are an asset – not an expense
It can help to view your employees as appreciating assets of the business. Sure, you’ll outlay costs initially but over time your team will bring knowledge, experience and loyalty to their acumen – qualities that will add value to your firm. The challenge for business leaders is to stay up to speed with current salaries,so do some research such as using an industry benchmark or Salary Guide.
Top talent are frequently courted and poached by hiring managers and head-hunters – a process made easier these days with professional job networks such as LinkedIn. Even if your top people love what they do, they may have no qualms flitting off to the next best offer if they aren’t being rewarded with a competitive salary.
Whenever key appointment-holders leave an organisation, project timelines tend to suffer, costing the company additional time and resources to resolve.
Take advantage of paying a competitive salary
As the employment market is constantly in flux, hiring managers should constantly evaluate and adjust compensation policies in order to be seen as a desirable firm to work for – one that pays competitive salaries.
A good perspective is to see employees as an appreciating asset. Sure, they may start off as a cost to the company, but satisfied employees who enjoy what they do become more valuable over time as they accrue new skills, knowledge and experience.
Want to know about the importance of DEI?
Corporate culture and ESG have become a critical part of recruitment and retention as both existing and prospective employees value employers who take proactive steps to improve the environment and society. Find out more in our new Salary Guide.