How to Fix the Competitive Pay Issue in Your Business

One of the essential roles of the department of human resources in an organization is planning on employee compensation. Mainly, human resource personnel determines when an entity requires a new workforce or fewer employees. Additionally, human resource managers determine the appropriate compensation package for each staff based on their duties in the company. In the competitive market, attracting the right employees is always essential. Therefore, companies are forced to develop attractive and appealing packages that not only entice qualified personnel but also facilitate employee retention. Often, companies fail to offer competitive pay to their employees, thus leading to low productivity and demotivated workers. 

Competitive Pay 

Competitive pay is one of the most common methods used by organizations to attract and keep talents. For compensation to be competitive, it should be comparative to that which is received by other employees in other markets. A competitive salary refers to the pay, which is considered equal to the standards of other companies in the same industry or geographical region (Mabaso & Dlamini, 2017). For most entities, a competitive salary is 10% above or below the market average for the same job in other companies (Kadir et al., 2019). 

In most cases, the compensation plan of an organization acts as the driving factor for one to accept a particular job. For that reason, the management needs to understand that to employees, compensation is not all about money but also other benefits that accompany the salary. Employees tend to be competitive when they are highly appreciated through compensations. In a competitive industry, a company with the most appealing compensation plans attracts a qualified workforce to gain a competitive advantage against others (Kadir et al., 2019). Among other things that employees seek to obtain besides their monetary salary include benefits and bonuses. These are essentials as every job seeker considers them a critical part of the compensation. 

Employees tend to put extra effort into improving their skills and competence to obtain the most attractive pay in organizations. Therefore, they tend to ask for substantial compensation for their services because they consider themselves qualified and equipped with the necessary skills. Mabaso & Dlamin (2017) state that companies are always willing to invest in well-trained and competent employees. Often, they consider it an effective way to gain a competitive advantage over the rest of the enterprises. Employers believe that paying a competitive salary is the best way to retain good employees and enhance productivity in the company. One's pay rises with an increase in experience and expertise as the two tend to strengthen the ability of an individual to perform tasks. 

Nonetheless, the compensation package of an organization depends on the size of the company, budget, and things that employees consider necessary for them to perform their tasks effectively. The management needs to establish what motivates its employees and, at the same time, make them happy. Workers are likely to be productive when they are so glad, and by receiving what they consider appropriate to compensate for their services (Aguenza & Som, 2018). Competitive pay is the right motivation for employees. 

Elements of Competitive Pay 

As stated above, competitive pay is not all about a big salary for the employee. Besides the monetary compensation, employees are also interested in the ability of an entity to offer other non-monetary benefits that enhance their ability to perform their tasks. There are several non-monetary benefits that employees consider when applying for a particular job. Mainly, these benefits are categorized into three major groups that an entity may wish to provide. Employee benefits are classified as life insurance, disability, medical, and retirement plans. Medical benefits are meant to help employees to cover for their rising medical expenses. Medical benefits are premiums, which the organization pays a part of the medical costs while the employee contributes the rest. Regarding life insurance, it is the accidental death and dismemberment (AD&D) insurance. Employers are required to offer families of workers compensation in case of an abrupt death of employees. Life insurance compensation equals the total amount of the employee's annual salary. 

Disability insurance is offered either as a short term or long term cover. The package is meant to cater to the needs of the employees when they are incapable of performing duties by covering the related expenses. In the case of the short-term disability, a portion of the worker's salary is temporarily paid. The compensation is offered if the injury hinders the worker from performing his/her duties (Aguenza & Som, 2018). Long-term disabilities last for two, five, or even ten years. In most cases, disability benefits fall between half and two-thirds of the employee’s income before incurring the injury. The final package of employee benefits is the retirement plan. These are funds that employees set aside to ensure that they have an income later in life. A retirement plan can either be a defined benefit plan or a contribution plan. 

Finally, there are other fringe benefits, which are the additional compensation that companies give to their employees besides the regular pay and benefits. Unlike the four groups of benefits that are universal to all employees, some fringe benefits are exclusive. According to Aguenza & Som (2018), employers use fringe benefits to facilitate employee recruitment, motivation, and competition among the employees. For instance, some employees may receive fringe benefits as compensation to the cost incurred while performing their work. At the same time, it can act as a way of promoting job satisfaction among employees through adequate appreciation (Knepper, 2018). For example, companies may choose to offer their employees a transport system to and from the workplace. For those in a higher position, they might receive the company's car to facilitate their ability to perform their duties. 

Competitive pay becomes a compensation challenge when employers cannot handle and fully satisfy the needs of their employees in terms of compensation. Employers need to ensure that the payment offered to employees coincides with the value of their services and skills in the firm. Otherwise, it is impossible to attract the right people to perform the necessary duties effectively. Human resource management develops strategies to ensure that they cater fully to the needs of their employees. Good pay reduces compensation conflicts that may lead to unproductivity in the enterprise. 

Addressing the issue of Competitive Pay 

Every company tries the best to ensure that its employees feel well-compensated and appreciated for their skills. Bad pay can easily demotivate employees, making them less productive. One of the most significant ways that entities employ to deal with the issue of competitive and equitable compensation is through the development of a salary structure. 

Salary structure is a vital component of a compensation program that helps an organization to ensure competitive external pay and equitable internal pay. An effective salary structure provides that the management rewards performance and skills development while at the same time controlling the overall base salary cost 

Sometimes, organizations may decide to use the salary ranger in defining the structure. Usually, a salary range provides the company with the maximum and minimum that an organization needs to pay to a worker in a particular position (Mabaso & Dlamini, 2017). In most of the cases, entities tend to group their employees into different groups. Each job group had varying payment structure as compared to others. The salary range appears in a hierarchical structure. Those at the top of the structure tend to receive high pay while those at the bottom receive low payment. Often, salary structures are expressed as pay grades that reflect the value of the job in the external markets as well as the intrinsic value of the organization (Kadir et al., 2019). 

The development of salary structure eases human resource officials the challenge of having to decide on an employee that they hire. When hiring employees, it easy to categorize employees. Human resource management requires to identify the group under which the employees fall based on their duties in the entity and identifying their payment brackets. 

Salary structure designs 

There are two primary strategies that companies utilize when designing a salary structure for their employees. The first technique is marketing pricing, where companies use the current salary survey data individuals' jobs to create and even design their range of salary in the payment structure. Based on a survey, only 3% of the companies in the market tend to depend on the second strategy is the point-factor method (Salim & Ismail, 2015). The technique entails assigning a specific job within a company. 

An organization may choose to use the traditional salary structure or broadband. For the conventional structure, there are several layers and ranges structures with a range that appears relatively small from each other (Salim & Ismail, 2015). Additionally, it provides the hierarchical structure that allows workers to move from one level to another through promotion. Primarily, this form of structure assists in recognition of the various payment rates based on their performance and assurance of the realistic level of control over the internal compression and salary expenditure. In the case of broadband, the salary structure appears more flexible, where the pay grades are consolidated into fewer structures with more extensive salary ranges. Statistically, 82% of companies in the US use the traditional structure, while only 7% utilize broadband (Salim & Ismail, 2015). The hybrid structure is used by nine percent of the companies in the market. 

Providing Employees with Benefits 

Another way that entities ensure employee compensation is competitive is through the provision of attractive benefits. For most companies, they provide employees with medical insurance. Mostly, the expenses covered in the medical benefit include the employee’s visits to the doctor, surgeries, and prescriptions. For some other entities, they also include other treatments like dental and vision (Aguenza & Som, 2018). The extent of care differs from the company. While some employees provide medical insurance to their employees alone, others extend the care to the family members who are dependent on the employee. All employees who work more than 30 hours in a company are entitled to healthcare benefits, which is provided in the form of saving plans like the Health Reimbursement Accounts or Flexible Spending Accounts. 

Other companies ensure that they attract employees by providing life insurance. The cover guarantees that employees ’ families are compensated in case their loved ones die in accidents. Also, the majority of companies offer their workers with retirement plans that enable them to plan for their income once they retire from their present jobs 

Recommendations 

Every organization works hard to ensure that it attracts the best employees in the market. However, there is no specific entity that has comprehensive compensation benefits. Time and again, companies are likely to experience challenges relating to the low payment. This might result in high employee turnover as they try to find better-paying jobs. In cases where they decide to stay in the entity, they might become less motivated, thus being less productive. The following are recommendations that corporations may consider to ensure that they avoid compensation challenges relating to competitive pay for the employees. 

Conducting frequent revision of the salary structure. For a company to be competitive and obtain the best talent and skills pool, it needs to display the best payment program for employees in the market. Entities should keep in touch with the trends and changes in other entities to ensure that the pay falls in the same range as the rest of the companies. This will ensure employees are trained and that they are not tempted to seek better compensation in other organizations. 

Companies should offer employees non-monetary benefits, including fringe benefits. Extra payment and appreciations play a crucial role in attracting employees in an organization. Besides, compensations are motivating factors for workers to work hard and attain organizational goals. 

Companies should establish an essential rewarding system for their employees. It is crucial to communicate the strategy that the management will use to appreciate and reward those that perform in the company. For some employees, competition is critical because it motivates workers to work hard in their positions. 

Companies should always define tasks and the expected salary, together with the benefits packages that employees are entitled to when starting a job with the organization. Prior understanding of the compensation helps the management in avoiding internal conflicts as employees argue with the management seeking for better pay. 

Conclusion 

Compensation refers to the monetary and non-monetary payment given to the employees in exchange for the skills and competence they offer to the organization. The benefit is one of the factors that attract employees to a given position in a company. It is always vital for employers to ensure that the employers’ needs are well met in the compensation program. In a competitive market, organizations with the most competitive employers are likely to attract the most qualified employees. For most companies, they use salary structures to avoid issues of compensation. The structure makes it easy for the managers to allocate salary and benefits to employees. Additionally, a universal benefit plan ensures equality among employees irrespective of their job grades. Among the benefits that need to be equal among all employees include medical, life, and retirement plans. 

References 

Aguenza, B. B., & Som, A. P. M. (2018). Motivational factors of employee retention and engagement in organizations.  IJAME . 

Kadir, A. A., AlHosani, A. A. H. H., & Fadillah Ismail, N. (2019). The Effect of Compensation and Benefits Towards Employee Performance. 

Knepper, M. (2018). From the Fringe to the Fore: Labor Unions and Employee Compensation.  Review of Economics and Statistics , (0). 

Mabaso, C. M., & Dlamini, B. I. (2017). Impact of compensation and benefits on job satisfaction.  Research Journal of Business Management ,  11 (2), 80-90. 

Salim, S. S., & Ismail, A. (2015). Adequacy of Pay Structure and Its Impact on Personal Outcomes.  Acta Universitatis Danubius. Œ conomica ,  11 (6).