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Mar 21, 2014

You’ve seen your company’s want ads and heard the pitch from your recruiters; you offer competitive pay to qualified candidates.

That’s got to be a strong hook for attracting talent, right?

Big deal.

Your pay structures are updated based on market trends, so the pay opportunities offered to employees support your retention and motivation strategies, right?

Not enough.

Most employees presume that their company aspires to meet the goal of competitive pay. Companies routinely advertise the practice (“we offer competitive wages”) and candidates expect this of potential employers.

But what happens when your goal of offering competitive pay is finally achieved? Are employees grateful? Can companies rest in their efforts to attract, motivate and retain?


Good news / bad news?

What doesn’t happen when you offer competitive pay is that your recruitment problems don’t magically disappear, your employees won’t be satisfied, and your compensation programs have achieved little more than being average – and isn’t that a “C” grade in school?

Is that where you want to be? As far as aspirations go, it’s only middle-of-the-road.

If your company does pay the so-called “going rate,” that means that 50 percent of the companies out there are paying more than you. That’s what average gets you, with half doing more and half doing less.

Is that what your company aspires to achieve?

No one leaves your company for less money, so all you’ll hear from your employees is about how so-and-so is making more somewhere else. And as employees only hear what supports their own notions (ever try to argue politics?) they won’t pay attention to the broader rewards package but just the points that confirm their opinion that your company isn’t paying enough.

Employees relate to their pay, not salary ranges

The only way to avoid this scenario is being the premier paying company in your market/industry  — and can you afford that cost?

Lest we forget, it’s important to differentiate between having a salary structure (grades, salary ranges and midpoints) that provides competitive rate “opportunity” and actually paying employees at those rates.

Some describe this as whether the company is “walking the talk.” I recall a client who was proud of the fact that their salary ranges were continually adjusted to mirror market rates, but was later embarrassed to discover that actual pay practices fell well below their published midpoints.

For their part, employees relate to what they are being paid, not the midpoint of a salary range or other such declared “opportunity.” To them the company’s “competitiveness” is more illusion than fact; especially if they’re experienced and have been with you for a while. Thus the company needs to keep its focus on actual vs. opportunity pay.

Why don’t employers pay the “going rate”?

Typically it’s not a strategy, but a series of practices that evolved over time.

  • Some candidates will accept a lower rate than should normally be paid for their knowledge and experience, and managers tend to view this as a cost savings, though it is more like putting a skeleton into the closet and hoping it doesn’t jump out at you down the road. One day these employees will change their minds.
  • Once you’ve started down the slippery slope of paying some employees below market rates, the practice is soon compounded by internal equity. Managers resist paying similarly qualified new people more than existing employees, so if possible the new hires are offered below market pay.
  • Pay-for-performance systems have a hard time keeping up with the increased marketability of employees. A minimally qualified employee hired at the minimum rate will gain knowledge and experience (and thus marketability) faster than a company’s annual merit system can recognize.

Be careful with what you claim

So, what’s the answer?

Management won’t agree to become the premier payer in your area, so you should consider instilling flexibility into your pay practices. Consider targeting key jobs (highly skilled, difficult to replace, etc.) and make sure those job holders are well paid for the market.

Other positions less skilled and more easily replaceable could continue with your “competitive opportunity” strategy. This approach is akin to ring-fencing key talent, protecting them against poaching while recognizing/rewarding those with the most potential impact on your business.

Bottom line? Be careful when you claim how your company provides competitive wages.

You may not be correct, but if so – big deal.

This was originally published at the Compensation Café blog, where you can find a daily dose of caffeinated conversation on everything compensation.

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