Determining the "right" compensation can be tricky. Not only is money a touchy subject, but so many factors play into deciding compensation rates that are both fair and competitive. Companies must evaluate a complex mix of factors to determine compensation. The pay level of a job depends on market trends, like current data regarding salaries for similar jobs, and also on evaluating an individual candidate's value to the company. Here, we discuss five key components that influence pay rates the most:
1. Aligning industry market trends with internal standards
To remain competitive, hiring managers must research market trends in the industry to determine what competitors are paying employees in similar roles. Examine market salary rates based on job title, responsibilities, and location. Workers with similar, or even the same job title can receive vastly different wages depending on what industry they work in. There are many reasons for this discrepancy — in some cases, their job function may be critical to a particular sector, or it may simply be a matter of one industry being considerably larger than the others.
A company's market position can impact its ability to pay competitive salaries. After determining trending pay for a position, the organization must compare that to the internal salary rates to assess an appropriate and competitive compensation amount.
2. Years of experience and education level
The more experience and education a candidate has, the higher their expected compensation. So, companies hoping to attract job seekers with master's degrees or more than five years of experience must be ready and willing to compensate accordingly. Also, degrees or certificates from exceptional institutions might warrant a higher pay rate than those from a school considered weak in a particular field.
Entry-level candidates qualify for less compensation than those with several years of experience. Hiring less-experienced candidates and training them internally is one way an organization may reduce salary expenses while developing employees' skills.
3. Variable compensatory factors (such as shift work)
Many variables might impact salary rates for a specific position. Shift differentials might apply, such as extra pay for working less favorable hours like overnights or weekends. Some jobs pay a premium for employees in hazardous working conditions, like handling dangerous chemicals in a research lab. Companies may pay extra for a unique skill, like a multilingual employee who can speak or write fluently in several languages.
The cost of living, a significant factor to consider when determining compensation, is mainly dependent on location and, more specifically, the cost of housing. This is at least partially why salaries in large urban areas are generally higher than salaries for similar positions in more rural locations. However, with the surge in remote work, many employers have shifted to role-based compensation rather than location-based. Do some research to see what the trend is in your field.
Companies must evaluate a complex mix of factors to determine compensation. The pay level of a job depends on market trends, like current data regarding salaries for similar jobs, and also on evaluating an individual candidate's value to the company.
5. In-demand skill sets
Critical skills may be an even more reliable metric to compare against than job title when determining compensation. After all, different companies may have very different definitions of the same job title. On top of that, many skill sets can apply to various roles — all of which are effectively competing for the same talent. That's why employers need to consider the value of key skills when determining compensation.
When considering in-demand skill sets, it's crucial to be aware of the availability of relevant talent in the geographic region where you're recruiting. If you're recruiting in an area where the demand for a specific skill set and experience outweighs the supply, you should expect to pay more to attract talent.
The cost of not offering competitive pay
You may think you're saving money by keeping compensation rates low; however, it's essential to consider what it's costing you in other areas. For instance, many employers overlook the costs associated with unfilled positions for extended periods. Similarly, remember the burden an unfilled position can put on your current employees, who may be taking on extra work to fill the gaps — not to mention what that can do to morale.
What happens if you can't pay market value?
It is possible to attract top talent even if you can't offer the most competitive salary. Supplementing your compensation package with low- or no-cost perks, such as development opportunities, remote work, more vacation time, and flexible hours can go a long way in retaining your current workforce. Another option is to recruit from areas where compensation rates are lower and let employees work remotely from home or from another office closer to where the employee lives.
Take the guesswork out of determining compensation
It's essential to do a little recon when determining competitive pay rates. Competitive intelligence is your best friend when it comes to determining compensation. CareerBuilder's Supply & Demand Portal provides up-to-date and relevant compensation rates for even the most specific of positions. You should also be able to see where compensation rates may be lower or higher (if you're considering recruiting in other locations) and — perhaps even more intriguingly — get a peek at what your competitors are paying.
Related reading: more tips on hiring and retaining top employees
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