The amount you pay is a clear indicator to employees of how much you value them and therefore a higher wage will also make them feel they are higher valued. This in turn is likely to increase moral and employees' commitment to their teams and your company.
If you don’t offer a salary that's competitive in the jobs market then you'll lose out on the best people to those of your competitors who are offering more.
This is particularly important in today's booming jobs market where competition is fierce for new talent. If you don’t ensure your salaries are competitive you will lose out and others will gain in your place.
While it's obvious that offering higher salaries will grant you access to the best people, there are obvious constraints on how much you can pay without exceeding your budget. This leads to a balancing act between how much you can afford and attracting the best people.
Balancing these considerations will include evaluating how much the person you are looking to employ is worth on the market versus how much they are worth to your business.
The following checklist can help you to decide whether the salary you’re offering is the right balance of affordable and attractive. Ultimately a competitive salary is one that gives you access to the best people without you overspending. It's what you always want to be offering.
The first step is to name the role that you want to fill. The aim is to describe it accurately and convey its responsibilities. However, this needs to be weighed up against generalising the name so that it can match up with similar roles and job titles in other companies that function in the same sector.
This will allow you and prospective employees to compare whether the wage you are offering is in line with or ahead of the salaries at your competitors. Once you have a title you also need to describe the role.
This needs to be accurate and outline the day to day aspects of the job. It should also include scope for some flexibility in what might be asked of the employee. Once you have achieved this you will be able to proceed with the next step, which is researching the compensation offered for similar roles throughout your industry.
It’s obvious that you should have an understanding of the industry standard salary for the role you are looking to fill at the time that you are looking for new employees. It's essential that you are up to date on the current demand for skills and the subsequent market price.
The best place to start is online. There are several useful websites for finding out salary information for exact job profiles. These websites also often contain geographical information. This is important as wages for a job in London for instance can be significantly higher than those elsewhere in the country because of living costs.
This is something you will need to bear in mind. It’s also always valuable to listen to other people’s experience where it’s relevant. Whether that be suppliers, customers, other business owners, recruitment firms, and even other people with the job title you are looking to fill.
All of these people will have experience and insight that could save you time and costly mistakes. A brief note is that you’ll have to comply with the law on several issues so it's worth consulting an advisor and looking at the UK government’s webpage on employing people.
This is especially relevant when recruiting for positions that are around minimum wage.
This is a common and useful technique to identifying the ‘competitive wage’. It’s also very simple. You ask the candidates. This can be a very early indicator of whether you can afford somebody as you can ask at the application form stage of the interview process.
This technique is a bit like getting the candidate to initiate negotiations which depending on your style might leave you at an advantage where the employee reveals their preferences before you reveal yours with a job and wage offer.
To do this you will need to consider the following. Firstly, what is the revenue generated by the employee likely to be and therefore what is the return for bringing them on board. This calculation of return should also consider the increased amount of time it frees up for the rest of your team and yourself.
What extra capacity for work will this bring in and how will this effect revenue? This is basically the opportunity associated with a new recruit. You need to ask yourself if the offer you need to make to gain this new employee is going to affect what the other members of your team are currently satisfied with.
For instance, if the demand for a certain skill has increased in the twelve months since you last hired someone for the same role and thus you need to offer more to a new employee than you currently pay the last employee to be hired then you will probably need to increase their wage as well to maintain equity of wages.
This added expense might mean that you cannot afford to pay the wage of a new employee at this time, or you might need to hire someone with less experience. This ties in with whether you can afford to give a raise within the timescale that it would normally be expected.
After all the research, this step is when your best guess at a competitive compensation package. However, the decision making isn’t quite over. The offer can come in several forms, you can either offer up a straight salary, or alternatively you can combine this with bonuses and shares.
Packages such as company car schemes, childcare, and other benefits in kind can also give you more appeal to candidates. The addition of performance based bonuses and shares can reduce costs to you and also incentivise high performance from your employees, in turn giving you more value for money.
In addition, you can attract driven goal-orientated employees more with rewards such as bonuses and shares. These employees can be more effective and offer better returns than those who are less driven.
Again, offering a competitive salary is very important to show that you’re serious about getting the best people involved in your business. It will also reduce employee turnover thus saving you money from training new people more often.
You need to make sure you record everything. For parts of the process of hiring and employing this is a legal requirement. The governments tax website outlines what you’re required to record. However, data can also be useful for other things such as tracking changes in the demand for new hires.
It may become clear that a slump in demand is occurring at which point it's advantageous if you’re in a good position to undertake a recruitment drive as you might find it easier to attract the best talent.
As with everything, knowledge is power. But bear in mind that the information you gather is likely to be highly sensitive and you need to make sure that you keep it secure and that you use it responsibly and in line with regulation.
Finally, although this is by no means the end of the process as this point will highlight, you need to remain vigilant and aware of changes in the jobs market even when you aren’t on a recruitment drive.
Signs of a drop in the competitiveness of your wages might be that you start to see a rise in employee turnover, or a drop off in productivity due to lower morale and dissatisfaction with what employees see as them being underpaid. Most concerning is if you notice employees being poached by rivals.
Any of these indicators are problematic and you should do your best to prevent this happening. To do so you need to keep a watchful eye on the jobs market by continually undertaking the research in steps two and three for the positions already filled in your business.
You should look out for rises in demand for new employees and make sure that you adjust wages at these times in order to retain the good talent that you’ve already gathered. It’s easy to become sedate but the best teams are the ones that are most up to date and know the value of their assets – their people.
As with almost everything the key to offering a competitive salary is information. It’s an easy thing to achieve if you keep yourself informed and perhaps the most important thing to remember is that the competition is never over.
You can always lose employees to competitors and to prevent this and maintain the best teams you need to make sure the compensation you offer is up to date and enough to keep your valued employees with you. You also need to bear in mind that offering too much will be prohibitive to your business growing because of wage costs.
It’s a fine balance and not an easy one to get right. But if you do get it right by following this checklist, then you will be laying the foundation for building the most successful and driven teams around.
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